AIG head’s $3M in Goldman stock raises apparent conflict of interest

[notesdev]

By Timothy P. Carney
Examiner Columnist | 4/10/09 1:38 AM
Edward Liddy, CEO of government-run AIG, still owns more than $3 million of stock in Goldman Sachs, which has pocketed $13 billion or more of the $170 billion federal officials have spent bailing out the ailing Wall Street insurance giant.

Liddy is managing a company that receives taxpayer dollars to pay other financial firms, with Goldman Sachs the top recipient. While there is no reason to believe Liddy is influencing AIG actions to unfairly benefit Goldman, the situation represents a potential conflict of interest that would never be allowed in a government agency, but is permitted in the strange public-private chimeras like AIG spawned in this age of bailouts.

Liddy, according to an AIG spokeswoman, “views his role as CEO in essence as a public service.” Liddy has been charged, in effect, with protecting the unstable American economy and taking care of the taxpayers’ money.

As we saw with the political eruption over the bonuses his company paid out last month, Liddy needs government approval for his actions. The federal government owns 79.9% of AIG, and so Liddy, in effect, works for the government. In theory, then, Liddy works for the American people.

Yet he is not covered by the same ethics and financial disclosure rules that govern real government employees, specifically, conflict of interest rules don’t apply to him. Thus, Liddy observed in a recent Washington Post oped that “my annual salary is $1. My only stake is my reputation.”

But he has acute financial stake in one of AIG’s counterparties—namely, his $3.2 million personal investment in Goldman Sachs.

Liddy served on Goldman’s board of directors until September 2, 2008, when Treasury Secretary Hank Paulson called on him to take the reins at newly bailed-out AIG, now 80% owned by the federal government.

Goldman’s 2008 proxy report states that Liddy, on February 11, 2008, owned 27,129 shares of Goldman stock, about two-thirds of which were restricted—meaning that if he sold them, he would have to pay severe tax penalties.

An AIG spokeswoman confirmed for the Examiner that Liddy still owns all these shares - both the restricted and the unrestricted stock - many of which were received as compensation for his service on the board.

Goldman’s 2009 proxy report states that Liddy will be allowed to sell his restricted shares on May 31.

The potential conflict of interest is this: Goldman had bought billions of dollars in credit default swaps from AIG. AIG’s insolvency means the company cannot repay in full all of its counterparties, like Goldman.

As a result, the Federal Reserve bailouts of AIG have been, in effect, payments from the Fed to AIG’s counterparties, relieving AIG of its debts to these counterparties. Which specific route AIG takes to dig itself out of its hole directly affects Goldman—and in turn, affects Liddy’s multimillion-dollar investment in Goldman.

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rest here:

http://www.washingtonexaminer.com/opinion/columns/TimothyCarney/AIG-heads-3M-in-Goldman-stock-raises-apparent-conflict-of-interest-42779802.html

[dkf]

1. This looks bad.

It could be said that Liddy left Goldman to save AIG to save Goldman.

Argh.

[w4rma]

2. Every day more stories come out about this corruption and yet Obama keeps trying to save the corrupt

institutions. Why? Why did Obama hire people who would save them before the nation?

[girl gone mad]

3. It's a huge conflict of interest.

He makes more from one of his company's largest derivatives counterparties than he does from his own company. Maybe this helps explain why contracts that should have been written down 70% or more were paid out at face value?

[GoesTo11]

4. Where are the guillotines when we need them?