Rep. Henry Waxman has blasted American International Group Inc. for holding a high-end executive retreat less than a week after getting help from the Federal Reserve Bank of New York.

The topic came up today as the House Oversight and Government Reform Committee began a hearing on the recent problems at AIG, New York.

One of the witnesses scheduled to testify was Maurice Greenberg, the former chairman of AIG, who is now the chairman of C.V. Starr & Company Inc., New York, an insurance broker.

Greenberg, who was forced out of AIG in 2005, apparently will not be testifying today.

Greenberg told the committee “he was too ill to appear today to answer questions,” according to Waxman, D-Calif., the chairman of the committee.

Greenberg has blamed his successors at AIG for the company’s current problems, but “many others think it is Mr. Greenberg who sowed the seeds that led to AIG’s failure,” Waxman said.

Also during the hearing:

- Waxman criticized the current AIG managers’ decision to hold their recent executive retreat, which took place shortly after the company arranged an $85 billion credit facility from the New York Fed, at the St. Regis Resort in Monarch Beach, Calif.

“Average Americans are suffering economically,” Waxman said. “They are losing their jobs, their homes, and their health insurance. 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.”

- Waxman talked about a letter that the Office of Thrift Supervision, the agency that oversaw AIG Financial Products Corp., London, AIG’s troubled derivatives unit, sent to AIG’s general counsel in March.

OTS officials expressed concerns about how well the unit was managing risks and how well AIG was monitoring it.

AIG Financial Products, which is now in the process of shutting down its operations, once sold credit default swaps, instruments used to insure investors against the risk that bonds might default. AIG had to seek federal help in September because rating downgrades forced AIG Financial Products to back up the credit default swaps with tens of billions of dollars in additional collateral.

The OTS will not release a copy of the March letter to the public.

Waxman says an OTS official wrote in the letter that, “We are concerned that the corporate oversight of AIG Financial Products … lacks critical elements of independence, transparency and granularity.”

AIG’s records show that the company auditor, PricewaterhouseCoopers L.L.P., New York, expressed similar concerns.

PricewaterhouseCoopers representatives said in March during a meeting of the AIG audit committee that AIG risk control groups lacked “appropriate access” to AIG Financial Products records.

One former AIG auditor, Joseph St. Denis, said he felt that Joseph Cassano, the head of AIG Financial Products, had kept him from doing his job, Waxman said.

- Waxman criticized AIG for spending $10 billion on stock repurchases and dividend increases as its financial problems were mounting, and he also criticized the company for deciding in March to reward 70 top executives, including Cassano, with big bonuses.

In March, the AIG board accepted company managers recommendation that AIG Financial Products’ “unrealized market valuation losses be excluded from the calculation” of AIG executive bonuses for 2007, Waxman said.

Even after Cassano was terminated in February, AIG let him keep up to $34 million in unvested bonuses and put him on a $1 million retainer, Waxman said.

- New York State Insurance Superintendent Eric Dinallo testified that that it “would be a broad misunderstanding, bordering on inappropriate,” to view the AIG liquidity problems as an argument for federal regulation.

“It is important to have the states in the solvency business,” and while the states have been “clunky” on other issues, they have done very well at solvency regulation, Dinallo said.

Members of Congress may want to “revisit” the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, which eliminated the barriers between banking and insurance created by the Glass-Steagall Act, Dinallo said

“The “supermarket of financial services” it created can cause problems for the whole place “when something smells in aisle 6,” Dinallo said.

Regarding the executive retreat, Dinallo said he thinks there are “some regrettable headlines,” but he said it would be worse if AIG executives and underwriters ended up in a “runoff” situation.

While there “is some profligate spending” in those resorts, the concept behind it “would not have been a crazy corporate decision,” Dinallo said.

- Greenberg says in his written testimony that the AIG Financial Products Corp. unit wrote few credit default swaps that involved exposure to subprime mortgages during the 7-year period before he left the company.

The unit “reportedly wrote as many credit default swaps on collateralized debt obligations in the 9 months following my departure as it had written in the entire previous 7 years combined,” Greenberg says.

The new exposure “appears to have been entirely or substantially unhedged,” Greenberg says.

Greenberg says he believes AIG risk controls weakened after he retired.

One change seems to have been the elimination of weekly meetings once held to review all of AIG’s investments and risks at the chief executive officer level, Greenberg says.

- Greenberg blasted AIG’s move to give the Federal Reserve Bank of New York a 79.9% stake in the company in exchange for an $85 billion credit facility.

To service the debt incurred through the loan from the New York Fed, “AIG will have no choice but to engage in a fire sale of profitable assets,” Greenberg says.

The equity component of the deal is unnecessary, Greenberg adds.

“AIG has more than $1 trillion in assets, including key AIG assets that already act as security for the $85 billion loan facility,” Greenberg says.

“It was not necessary to wipe out virtually all of the shareholder value held by AIG’s millions of shareholders, including tens of thousands of employees and many more pensioners and other Americans on fixed incomes,” Greenberg says.

If AIG had filed for bankruptcy, rather than turning to the New York Fed for help, “those millions of Americans … would have at least have had the chance of recouping value on their investments in AIG over the longer term,” Greenberg says.