AIG former execs draw fire from lawmakers

By Kim Dixon and Rachelle Younglai

WASHINGTON (Reuters) - Lawmakers criticized American International Group Inc (AIG.N) on Tuesday for lavish spending and ignoring financial warnings as former top executives blamed the insurer's woes on accounting rules and short sellers.

AIG, rescued September 16 by a two-year $85 billion loan from the Federal Reserve, was blasted at a congressional hearing for sending executives to a spa retreat less than a week later and for giving a $1 million-a-month consulting contract to an employee blamed by some lawmakers for AIG's risky activities.

House Oversight and Government Reform Committee Chairman Henry Waxman revealed a letter from the Office of Thrift Supervision (OTS) and a warning by AIG's accountants about material weaknesses at AIG as part of a series of hearings into the financial crisis.

"We need to understand what makes a private company like AIG too big to fail and what drew such a large and venerable enterprise to the brink of failure," said Waxman, a California Democrat.

The OTS sent a letter to AIG in March warning of its lack of transparency and ability to oversee its financial products.

"A material weakness exists within corporate management's oversight of (the company's financial products unit) super senior Credit Default Swap (CDS) valuation process and financial reporting," said the March 10 letter to AIG's board from the OTS, a division of the Treasury Department.

But former AIG chief executives blamed the company's downfall on several factors, including mark-to-market accounting rules, which require companies to price their assets at current values even when there is no market.

The CEOs were Hank Greenberg, who left in 2005 after an accounting scandal for which he has denied wrongdoing; Robert Willumstad, who was brought in after wide mortgage losses in June 2008 until the bailout; and Martin Sullivan, who was CEO between Greenberg and Willumstad.

Greenberg submitted testimony to the oversight committee but did not appear at the hearing due to illness.

Republican lawmakers, as they did on Monday at a hearing with Lehman Brothers (LEHMQ.PK) chief executive Richard Fuld, tried to focus attention on housing finance companies Fannie Mae (FNM.P) and Freddie Mac (FRE.P), that were seized by the government early in September.

Some Republicans are calling for a special counsel, or the Justice Department, to examine the companies' role in the financial chaos. Waxman said his committee will hold a hearing on Fannie and Freddie's role.

The Lehman and AIG hearings come just days after Congress passed and President George W. Bush signed a $700 billion financial bailout package, giving the government vast powers to buy up bad mortgage-related debt.

But global markets have continued to swoon this week prompting calls for a coordinated multinational cut in interest rates, aimed at encouraging the resumption of lending.

OUTRAGE OVER PERKS

Lawmakers expressed outrage at perks AIG executives enjoyed less than a week after the bailout, including a spa retreat where they racked up bills for $200,000 for hotel rooms and $23,000 for spa services.