White House calls AIG spa trip ‘despicable’

updated 6:01 p.m. ET Oct. 8, 2008

WASHINGTON - The White House said on Wednesday it was "despicable" that American International Group Inc. executives spent hundreds of thousands of dollars on a posh California retreat just days after getting a federal bailout.

Lawmakers investigating the meltdown of AIG said the retreat didn't include anyone from the financial products division that nearly drove the company under, but they were still enraged that executives of AIG's main U.S. life insurance subsidiary spent $440,000 on the retreat, complete with spa treatments, banquets and golf outings.

"It's pretty despicable," White House press secretary Dana Perino said.

AIG sent its executives to the coastal St. Regis resort south of Los Angeles even as the company tapped into an $85 billion loan from the government that it needed to stave off bankruptcy. The resort tab included $23,380 worth of spa treatments for AIG employees, according to invoices the resort turned over to the House Oversight and Government Reform Committee.

"The president did not want to move forward on this rescue package to help anybody in the top positions on Wall Street," Perino said. "He was concerned about everyday people like you and me. ... He didn't do that to help top executives and certainly not to help executives go to a spa."

The Federal Reserve agreed Wednesday to provide the insurance giant with a loan of up to $37.8 billion, on top of one made to the troubled company last month. Under the new program, the Federal Reserve Bank of New York will borrow up to $37.8 billion in investment-grade, fixed income securities from AIG in return for cash collateral. These securities were previously lent by AIG’s insurance company subsidiaries to third parties.

"Average Americans are suffering economically. They're losing their jobs, their homes and their health insurance," House Oversight Committee Chairman Henry Waxman, D-Calif., scolded the company during a lengthy opening statement investigating the company Tuesday. "Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation."

The hearing disclosed that AIG executives hid the full range of its risky financial products from auditors as losses mounted, according to documents released Tuesday by a congressional panel examining the chain of events that forced the government to bail out the conglomerate.

The panel sharply criticized AIG's former top executives, who cast blame on each other for the company's financial woes.

"You have cost my constituents and the taxpayers of this country $85 billion and run into the ground one of the most respected insurance companies in the history of our country," said Rep. Carolyn Maloney, D-N.Y. "You were just gambling billions, possibly trillions of dollars."

Video   AIG CEOs taken to task for golden parachutes Oct. 7: Congress sharply criticized two former CEOs of AIG on Tuesday for costing taxpayers $85 billion in a government bailout while the insurance giant's executives profited. NBC's Lisa Myers reports. Nightly News

AIG, crippled by huge losses linked to mortgage defaults, was forced last month to accept the $85 billion government loan that gives the U.S. the right to an 80 percent stake in the company.

Waxman unveiled documents showing AIG executives hid the full extent of the firm's risky financial products from auditors, both outside and inside the firm, as losses mounted.

For instance, federal regulators at the Office of Thrift Supervision warned in March that "corporate oversight of AIG Financial Products ... lack critical elements of independence." At the same time, Pricewaterhouse Coopers confidentially warned the company that the "root cause" of its mounting problems was denying internal overseers in charge of limiting AIG's exposure access to what was going on in its highly leveraged financial products branch.

Waxman also released testimony from former AIG auditor Joseph St. Denis, who resigned after being blocked from giving his input on how the firm estimated its liabilities.

Three former AIG executives were summoned to appear before the hearing. One of them, Maurice "Hank" Greenberg — who ran AIG for 38 years until 2005 — canceled his appearance citing illness but submitted prepared testimony. In it, he blamed the company's financial woes on his successors, former CEOs Martin Sullivan and Robert Willumstad.

"When I left AIG, the company operated in 130 countries and employed approximately 92,000 people," Greenberg said. "Today, the company we built up over almost four decades has been virtually destroyed."

MORE FROM U.S. BUSINESS

U.S. business Section Front

NYC restaurants slammed by financial crisis USA Today price rising to $1 Buffett boosts wealth to top Gates Regulators clear Wells Fargo-Wachovia deal SportsBiz: MLB's dollars per win analysis Citi ends talks, Wells says it will buy Wachovia AIG’s viability in question with new Fed loan Amid crisis, states forced to take ‘drastic action’ National City in talks to sell itself: report Biz Quiz: Which beverage claims ‘drinkability’? U.S. business Section Front   Add U.S. business headlines to your news reader: