After $85 Billion, AIG Claims to Need Another $37.8 Billion

On Thursday, the New York Federal Reserve announced that it would give AIG another $37.8 billion in exchange for investment-grade securities which were sold to investment companies who now want their money back. The $37.8 billion comes on the heels of $85 billion which was lent to AIG last month.

AIG's request for additional funding comes at the same time as some harsh criticisms that executives at the company failed to exercise appropriate judgment in spending some of the $85 billion they received last month.

Henry Waxman, a representative from California and a member of the House Oversight and Government Reform Committee noted that within a week of receiving the $85 billion loan, AIG executives took a week-long retreat at a St. Regis Resort, during which invoices to the hotel totaled $440,000, including spa expenses of $23,000. While figures may seem like chump change when compared with the $61 billion the company has already drawn down from the $85 billion loan in the last month, Waxman makes the point that aggressive measures need to be taken to address budgetary changes in times of economic distress, and lavish spending is not responsible behavior with bailout money. Additionally, he makes the point that had the company's executives realized the extent of their own responsibility in AIG's current economic woes, they would not have been so eager to spend borrowed money frivolously.

An AIG spokesman noted that the retreat had been planned a year in advance for their top-performing sales persons. For a company which faced bankruptcy just a month ago, however, the retreat only seemed to reflect a flippant attitude towards current economic woes.

AIG CEOs, Martin Sullivan and Robert Willumstad, refused to take responsibility for the company's circumstances. Instead, they blamed "complex accounting rules that forced the company to take on billions of dollars in losses." Personally, I don't understand how accounting rules can be to blame. Accounting rules merely elucidate the reality of a company's financial position for the otherwise uninformed public. While the company may be in a better financial position on paper if they did not have to adhere to accounting reporting requirements, the reality of their financial position in the markets remains the same. As 'SEC Chief Accountant Lynn E. Turner said at the CEO’s defense during the hearing, arguing that blaming the accounting rules for the losses is like “blaming the thermometer…for a fever.”'

AIG's story highlights the complexity of the issues involved in determining a solution to the financial sector crisis. Among the many issues to be addressed:

Who is and should be responsible for what happened and what should be happening in each of these companies and the markets in general? And how should they be made to be accountable for their responsibilities in the financial markets?