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After bailout, AIG living it up

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The Federal Reserve on Wednesday agreed to provide insurance giant American International Group Inc. with a loan of up to $37.8 billion, on top of one made to the troubled company last month.

AIG, castigated by the White House, Congress and Barack Obama for hosting a $440,000 conference days after its $85 billion federal bailout, plans to hold another gathering for brokers next week.

The event, at the Ritz-Carlton in California's Half Moon Bay, aims to "motivate and educate" about 150 independent agents who sell AIG coverage to high-end clients, said spokesman Nicholas Ashooh.

White House spokeswoman Dana Perino Wednesday called "despicable" the expenses from the first gathering, a weeklong conference last month at the St. Regis Resort in Monarch Beach. Those costs included $23,000 for spa services, according to Rep. Henry Waxman, D-Calif., chairman of the Oversight and Government Reform Committee.

AIG considered buying advertisements to explain its position, only to be told by public-relations consultant George Sard that it would be "a really bad idea."

"To spend the taxpayer's money on an expensive ad campaign to apologize for how you used taxpayer money leaves you open to further attacks," Sard wrote in an e-mail to Ashooh. Sard, chief executive officer of New York-based Sard Verbinnen & Co., would not comment further.

President Bush didn't push for the bailout "to help top executives go to a spa," Perino said Wednesday at the daily White House briefing. Hours later, the Federal Reserve agreed to loan AIG an additional $37.8 billion on top of the initial $85 billion.

AIG Chief Executive Officer Edward Liddy, who replaced former CEO Robert Willumstad as a condition of the federal loan, Wednesday told Treasury Secretary Henry Paulson that the company intends to re-evaluate expenses.

"We understand that our company is now facing very different challenges," Liddy wrote in a letter to Paulson. "We owe our employees and the American public new standards and approaches."

Obama, the Democratic presidential nominee, said during Tuesday night's debate with Republican candidate John McCain that AIG should repay the U.S. Treasury for the costs of the event.

"AIG, a company that got a bailout, just a week after they got help went on a $400,000 junket," Obama said. "And I tell you what: The Treasury should demand that money back and those executives should be fired."

In his letter to Paulson, Liddy said the gathering was planned "many months" before the Federal Reserve's loan to AIG. Next week's meeting was also planned before the loan, Ashooh said.

"This sort of gathering has been standard practice in our industry for many years," Liddy wrote. "Let me assure you that we are re-evaluating the costs of all aspects of our operations in light of the new circumstances in which we are all operating."

About 50 AIG employees will also attend the Half Moon Bay meeting. Ashooh said he didn't know the cost of the event or how long it would last. Next week's meeting has more of an educational component than the St. Regis meeting, he said.

Receipts provided by Waxman for the earlier conference at the St. Regis were dated Sept. 22 through 30. AIG agreed to the $85 billion loan from the government on Sept. 16, ceding a 79.9 percent ownership interest to the U.S. government.

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.

The arrangement will help AIG secure funds on an as-needed basis, the New York-based insurer said in a statement.

On the brink of failure last month, AIG was bailed out when the government offered it the $85 billion loan during the ongoing credit crisis that saw Lehman Brothers Holdings Inc. file for bankruptcy protection and the sale of Merrill Lynch & Co. to Bank of America Corp. In return for the two-year loan, the government received warrants to purchase up to 79.9 percent of AIG.

As of Sept. 30, AIG had drawn $61 billion on the credit facility, of which about $54 billion has gone toward its securities lending and AIG's financial-products area.

The rest of the money has been for other liquidity needs amid an "unprecedented" freezing of credit markets, Liddy said last week.