Washington

Maurice Greenberg said today that the government effort to bail out American International Group Inc. has failed.

Proceeding as planned and selling the company at this time “would bring the government only pennies on the dollar for their investment in AIG,” Greenberg, the former chairman of AIG, New York, testified today before the House Oversight and Government Reform Committee.

Greenberg left AIG in 2005, after nearly 40 years at the company, in the middle of an accounting scandal.

Rep. Darrell Issa, R-Calif., the highest ranking Republican member of the Oversight Committee, criticized the decision to call Greenberg before the committee, saying he was troubled that Greenberg was the only witness at the hearing.

Greenberg brought with him a “dark cloud which the majority, in its briefing memo, dismisses as ‘not the subject of this hearing,’” Issa said.

Greenberg said during his testimony that it would have been cheaper for the government if it had walled off AIG Financial Products Corp., the company’s troubled derivatives unit, “and provided guarantees to AIGFP’s counterparties rather than putting up billions of dollars in cash collateral to those counterparties.”

“Guarantees would have sufficed,” Greenberg said.

Greenberg said AIG’s problem was a liquidity problem, not a solvency problem.

When a company is facing a liquidity problem, “the goal of government should be to provide temporary liquidity to save jobs and keep the gears of the financial situation operating smoothly,” Greenberg said.

The goal of government “should not be to liquidate large companies that have demonstrated that they can succeed if properly managed,” Green berg said. “It should be to restore them so that they can be employers and taxpayers.”

Greenberg said he would like to abandon the liquidation approach to resolving the problems at AIG and to “focus instead on rebuilding AIG so that it is better positioned to pay back the taxpayer.”

Greenberg defended his management of AIG.

After Greenberg was forced out, “my successor [Martin Sullivan] didn’t pay attention to the problems [at AIGFP],” Greenberg said.

After Sullivan left, “the new management didn’t pay much attention either,” Greenberg said.

AIG’s problems developed because it lost its Triple A ratings, Greenberg said.

“When they lost the ‘Triple-A’ rating, they should have slowed the writing of credit default swaps [at AIGFP,” Greenberg said. “They should have called a halt,” he said.

In response to a question from Rep. Elijah Cummings, D-Md., who has helped lead the outcry against AIG Financial Products unit retention bonuses, Greenberg said, “I don’t accept responsibility for AIG’s problems.”

Issa questioned why the committee was asking Greenberg about his opinions on the AIG bailout strategy.

“I’m worried that the committee is growing out of touch with the contemporary bailout issues,” Issa said.

The committee should be talking to Edward Liddy, the current AIG chairman, and to officials at the Treasury Department, the Federal Reserve Board and the U.S. Securities and Exchange Commission, Issa said.

Greenberg “has been a recurring figure in criminal and civil investigations by the Department of Justice and the Securities and Exchange Commission,” Issa said, adding that news reports indicate that SEC action against Greenberg on securities fraud charges “could come at any day.”

Greenberg’s lawyer, David Boies, confirmed that Greenberg has received a Wells Notice from the SEC, indicating he could be the target for legal action. Greenberg received the notice in May 2008.

Rep. Edolphus Towns, D-N.Y., chairman of the Oversight Committee, said today’s hearing will be only the first concerning AIG and that Liddy will testify soon.

“There will be a comprehensive review of the AIG problem,” Edolphus said.