Docs Obtained By Congress: AIG Hid Risky Investments

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Insurance giant AIG's role in market crisis probed

Lawmakers probe role of insurance giant AIG in financial meltdown requiring government bailout

ANDREW TAYLOR
AP News

Oct 07, 2008 09:54 EST



Executives at the American International Group Inc. hid from its auditors the full range of risky practices at its financial products division even as losses mounted, according to documents obtained by a congressional panel examining Tuesday the chain of events that forced the government to bail out the conglomerate.

As losses from risky financial products mounted in March, the Office of Thrift Supervision warned that "corporate oversight of AIG Financial Products ... lack critical elements of independence, and granularity."

At the same time, AIG's auditor, Pricewaterhouse Cooper confidentially warned the firm that the "root cause" of AIG's problems was that internal overseers in charge of limiting AIG's exposure were denied adequate access to the activities of the highly leveraged financial products branch.

Problems at AIG did not come from its traditional insurance subsidiaries, but instead from its financial services operations, primarily its insurance of mortgage-backed securities and other risky debt against default. Government officials feared a panic might occur if AIG couldn't make good on its promise to cover losses on the securities; investors feared the consequences would pose a threat to the U.S. financial system, which led to the government bailout.

House Oversight Committee Chairman Henry Waxman, D-Calif., also said that even as losses were engulfing the company, AIG executives depleted AIG's capital through stock buybacks and higher dividends.

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