The Stash

Who Cries For Aig's Ed Liddy?

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No one, apparently. Back in March, the outgoing AIG CEO was all over the Internet thanks to the massive bonuses his notorious Financial Products unit was slated to receive. Today, after news of his looming departure broke, The Wall Street Journal buried the story on page C2 and the Times devoted half its Liddy piece to an unrelated lawsuit by AIG policyholders.

It's actually a fitting coda to Liddy's tenure at the company. Though he always struck me as well-intentioned, even noble--the guy came out of retirement to take a kidney-stone of a job for a whopping dollar a year--Liddy ended his run as a man without a constituency. During the bonus uproar, he managed to alienate his own rank-and-file by conceding that their bonuses were ill-gotten--which was certainly true for some, but hardly what you want to hear if you're working hard to unwind a company whose metldown you had nothing to do with, as was true for many others. As one of those employees, Jake DeSantis, wrote of Liddy on the Times op-ed page:

I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

However justified the criticism, you can't blame Liddy's charges for thinking he could have done more to shield them from it. (Particularly once all manner of crank started bothering them at home and harrassing their children.)

But it's not like Liddy won himself many friends in government, either. As the controversy unfolded, AIG seemed to be the source of an increasing number of leaks in the financial press, whose upshot was to suggest Treasury had known about the bonuses and signed off on them months in advance. The leaks culminated with this rather amazing Journal story--headlined, "Geithner Aides Worked for With AIG for Months on Bonuses"--which appears to have been pieced together largely from AIG sources. The story included such incriminating nuggets as this:

After Edward Liddy took over as AIG chief executive, the company hired consultants to look at its payment plans around the world. One of Mr. Geithner's top bank supervisors at the New York Fed, Sarah Dahlgren, became the government's lead overseer of AIG. She sat in on AIG board meetings, joined at times by other top Fed staffers, and also participated in compensation-committee meetings.

Not exactly the sort of leak that would endear AIG to Treasury and Geithner. (Though, to be fair, it's far from clear Liddy personally authorized the leaks. For that matter, some appeared to come from the Fed, in whose direction Treasury had initially tried to toss some blame.)

Liddy insists he's leaving now, voluntarily, because AIG has reached a "stable inflection point ... with stable liquidity and no potential threat to the global financial system," according to the Times. But it's hard to imagine him staying much longer regardless. Like leaders of any kind, CEOs need a base, and Liddy wasn't likely to find one either within his own company or among his government overseers.

Having said that, the Obama administration can't be too dissatisfied with Liddy. The outgoing CEO did them two huge favors in the end. First, as Hank Paulson's hand-picked choice to run AIG, Liddy was a convenient source of cover for Geithner and Treasury. Pretty much anything that went wrong at the company could be laid at Paulson's feet. (In fact, we should probably take comfort in Liddy's imminent departure. If there were more big bombs on the horizon, would the administration really let its human bomb-shelter walk away so soon?)

Second, the bonus flap Liddy stumbled into clearly undermined the case for bank nationalization--something the administration desperately wanted to avoid. Watching with horror as the House overreacted to the bonuses, elites who'd once favored nationalization ran screaming in the other direction. "In previous columns, I have been an advocate of nationalizing big banks like Citigroup," Times columnist Joe Nocera wrote in late March. "But after watching Congress this week, I’m having second thoughts. If this is how Congress treats A.I.G., what would it do if it had a bank in its paws?"

If we're looking for a financial-crisis inflection point, this sudden change of heart among people like Nocera may be the most important one, since it significantly eased pressure on the administration. And yet it's hard to imagine it happening if Liddy had been a little more proactive--say, by renegotiating the AIG bonuses in advance.

Lack of foresight is rarely a desirable quality in a CEO. But, in Liddy's case, the administration should be eternally grateful for it.

--Noam Scheiber

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