AIG's turn

Congressional finger-wagging continued Tuesday in the second hearing to determine the roots of the current financial crisis, which was heightened by the stock market's 500-point drop the same day.

Splaying photos of a luxury hotel where American International Group executives held a conference after an $85 billion federal rescue Sept. 16, congressional members asked again how taxpayers could be responsible for the financial troubles of such fat cats. Receipts provided to the committee showed that AIG leaders spent $23,000 on spa treatments alone.

"It seems very inappropriate," said AIG CEO Robert Willumstad, who joined the company in June, was dismissed at the time of the federal bailout, and rejected his $22 million severance package.

"You didn't get penalized because of the losses," said Henry Waxman (D-Calif.), chair of the House Committee on Oversight and Government Reform, to two former chief executives of AIG.

Questions veered between the fairness of executive compensation and the company's role in the crisis.

Mark Sullivan, who was CEO of AIG prior to Willumstad, spoke as someone who has worked with the company since he was 17. He described AIG's floundering as part of a massive financial "tsunami."

"It's not just the United States," said Sullivan. Specifically, he noted the "unintended consequences" of mark to market accounting practices, which forced the company to reduce the value of its holdings. Willumstad cited a "crisis of confidence."

But some experts testified that management at the insurance company was rotten.

"I think you've got a serious problem from the top down," said Lynn Turner, formerly chief accountant with the Securities and Exchange Commission.

Representatives turned this conclusion on the executives before them.

"Do you feel that you have any responsibility for what has happened in our economy?" asked Rep. Mark Souder (R-Ind.).

In his opening statement, Willumstad said, "I don't believe AIG could have done anything differently."

Edward Liddy, the company's current CEO, was not present to answer many of the commission's pressing questions about the government's current involvement in the firm. Neither was Joseph Cassano, the head of AIG's financial products, who representatives targeted for his mistakes. AIG is still paying Cassano $1 million a month, according to the committee. Maurice Greenberg, who was CEO of the company for 35 years until 2005, did not attend the hearing reportedly because of illness.

Republicans on the committee harped on Fannie Mae and Freddie Mac as the root of the entire crisis.

"We're splashing around in the wading pool and we need to be looking in the cesspool," said Rep. John Mica (R-Fla.).

"In the search for causes, all roads lead to the mortgage market," said Rep. Chris Shays (R-Conn.).

The House committee does not have hearings scheduled to investigate Fannie Mae and Freddie Mac. The first hearing yesterday focused on the failure of Lehman Brothers. Three more hearings are scheduled over the month of October, despite Congress being in recess.

Meanwhile, the U.S. Treasury started a new office to oversee the $700 billion rescue package. Secretary Henry Paulson named Treasury official Neel Kashkari, a well-heeled banker, to head the new Office of Financial Stability.