Regulators defended their roles in the oversight and bailout of failed insurance giant American International Group Inc. in Congress Thursday.
Sen. Richard Shelby, an Alabama Republican, called the company "the greatest corporate failure in American history" and said its problems came from its insurance divisions as well as from widely criticized risky deals involving complex financial derivatives.
AIG reported Monday that it had a $61.7 billion quarterly loss, the worst in U.S. history. The same day, Treasury provided the company a new $30 billion loan from the $700 billion financial bailout program, giving the company access to more than $170 billion in taxpayer money.
The government effectively controls the insolvent company, with the Treasury Department holding an up to 79.9 percent stake.
"The question is, who is actually being rescued," said committee chairman Sen. Chris Dodd, questioning Federal Reserve Vice Chairman David Kohn.
AIG was the top issuer of credit default swaps, which provided insurance for corporate bonds, and it has spent billions trying to wind these down. Kohn refused to say which companies had benefited from the winding down of AIG's financial relationships.
"We need AIG to be stable ... and I would be very concerned that if we started giving out the names of counterparties, people wouldn't want to do business with AIG," Kohn said.
Dodd urged him to reconsider the refusal to name other financial companies that had benefited from AIG's bailouts.
"Public confidence in what we're doing is at stake, and right now the public is deeply, deeply troubled by this," Dodd said. "...We're going to have an awfully difficult time ... if we can't get answer to this."
The hearing comes on the heels of unusual and withering criticism from Federal Reserve Chairman Ben Bernanke Tuesday.
"I share your concern, I share your anger," Bernanke told the Senate Budget Committee. "It's a terrible situation, but we're not doing this to bail out AIG or their shareholders. We're doing this to protect our financial system and to avoid a much more severe crisis in our global economy."
AIG's new $30 billion loan earlier this week brought the company's bailout to more than $170 billion since Sept. 16. The government also has adjusted the terms of AIG's loans to make the debt easier on the company's balance sheet.
AIG is so big and sprawling, so intertwined with institutions around the globe, that its downfall could set off a vicious chain reaction. Upheaval on such a global scale would plunge the U.S. economy deeper into recession, drive up unemployment and stifle hopes for an economic rebound any time soon.
The company provides life, property and other insurance offerings, with 30 million policyholders in the United States alone. It also provides asset-management services and airplane leases.
New York insurance superintendent Eric Dinallo defended the patchwork system of state insurance regulation, saying the sole problem was in AIG's financial products division, which dealt in complex derivatives, and that state insurance regulators had done "a very good job." He said that without federal money, the company's insurance divisions would be $10 billion in the black.
