American International Group (AIG) could get nearly $38 billion in fresh cash under a program announced by the Federal Reserve last night, as the insurer tried to fend off criticism of a lavish event held days after getting an initial $85 billion government loan.
Under the new plan, the Federal Reserve Bank of New York will take up to $37.8 billion in investment-grade, fixed-income securities from AIG in exchange for cash.
The securities were previously lent by AIG's insurance company subsidiaries to third parties. The Fed said the new program will allow the company to replenish liquidity used in settling transactions with counterparties.
AIG had drawn fire in Washington on Tuesday for spending $200,000 on hotel rooms and $23,000 on spa services at an event, just days after it got the emergency loan from the government to avoid bankruptcy in the middle of the worst credit crisis since the Great Depression.
As lawmakers grilled former top executives at a hearing, Rep. Elijah Cummings, a Maryland Democrat, said: "They were getting facials, manicures and massages, while the American people were footing the bill."
On Wednesday, AIG said the "business event," hosted by one of its subsidiaries, was for independent life insurance agents. It said the event was planned "months before" it received the loan last month, and no AIG executives from headquarters attended.
AIG's effort to correct the record on the event came after White House spokeswoman Dana Perino used the word "despicable" on Wednesday when asked about the AIG event.
"I understand why the American people would be outraged," she said at a White House briefing. "It's pretty despicable, to realize how callous somebody might be."
President George W. Bush did not intend to benefit industry titans when he approved the bailout of AIG and a wider $700 billion Wall Street rescue package, she said.
"Rewarding failure is something we have a very hard time swallowing," Perino added.
AIG said current Chief Executive Edward Liddy had written a letter to Treasury Secretary Henry Paulson to clarify the circumstances of the business event.
The company said Liddy assured Paulson that AIG now faces very different challenges, saying: "(W)e owe our employees and the American public new standards and approaches," and that the company is "re-evaluating the costs of all aspects of our operations..."
Reuters