WASHINGTON — American International Group Inc: Chairman Edward Liddy today told a congressional panel that he hopes AIG can repay all money owed to the government within 5 years.

“We intend to pay back the government as soon as possible,” Liddy said at a hearing on AIG organized by the House Committee on Oversight and Government Reform. “We hope we can start that in a matter of months.”

But AIG, New York, can repay the government in full only if the economy cooperates, Liddy warned.

“Asset values have to stay strong,” he said. “There has to be a capital market that allows us to take businesses public.”

Rep. Edolphus Towns, D-N.Y., the chairman of the Oversight Committee, started the hearing by saying that ordinary taxpayers are indignant about the AIG bailout and are demanding more transparency.

“We are hearing, ‘Trust us,’ but we are not willing to let $180 billion go just on trust,” Towns said. “We will question; we will inquire; we will verify.”

Later, Towns and Rep. Darrell Issa, R-Calif., the highest-ranking Republican member of the Oversight Committee, asked whether AIG would show them or staffers AIG’s “Project Destiny” document, which has been described as a “multi-year roadmap for the restructuring of AIG.”

Liddy said he would share the document only if the lawmakers and congressional staffers who saw it would sign the same kind of confidentiality agreement that the Treasury and Fed officials who helped develop the document have signed.

Letting the roadmap become a public record would give confidential marketing data to AIG’s competitors, hurting AIG’s ability to repay the government, Liddy said.

Also at the hearing, Liddy said:

- AIG is now using $40 billion of Troubled Asset Relief Program funds, has a $43 billion loan from the Federal Reserve Bank of New York, and has access to $30 billion more from the Federal Reserve system.

- The Treasury Department is completing work on regulations that will govern AIG’s bonus policy.

- Treasury Department and Federal Reserve Board officials are playing a key role in strategic and policy decisions at AIG. Treasury and Fed officials “are very involved” with AIG, meeting both with internal committees and with the company’s board.

In response to a question, Liddy said he supports state insurance regulation, but he said he also believes that it is critical for Congress to add the kind of systemic regulatory process that Federal Deposit Insurance Corp. Chairman Sheila Bair proposed at an earlier hearing.

Bair proposed that a committee of federal regulators have the authority to pre-empt an institution’s primary regulator, regardless of the securities products it sells, if that institution engages in activities that could constitute a systemic risk.

Steve Adamske, a spokesman for Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, says Frank hopes to work on systemic risk oversight legislation this summer.

“We have not scheduled legislative hearings or a markup yet on the creation of a systemic risk regulator,” Adamske says.

But the committee “will be prepared to move as soon as the legislation is ready,” Adamske says. “Mr. Frank has discussed July 4th as a tentative time to complete our committee’s work, but that is not set in stone.”

The trustees who overee the government’s involvement in AIG also testified at the hearing.

One, Douglas Foshee, said the trustees have recommended the addition of 5 “new, highly competent, highly capable, independent director-candidates” to the AIG board.

Another trustee, Jill Considine, talked about the trustees’ views on efforts to oversee AIG compensation practices. The trustees have asked Liddy, senior AIG managers and the AIG board to undertake a broad review of the AIG compensation programs, and to develop a comprehensive compensation program that will apply to AIG as a whole, she said.

J.W. Verret, an assistant professor at the George Mason University law school, praised the AIG trustees but questioned the rules governing the AIG Trust.

One troubling provision requires the trustees to manage the trust in the best interest of the Treasury Department rather than the best interest of the U.S. taxpayers, and another offers the trustees generous protection against liability, Verret said.

“A third permits trustees to invest personally in investment opportunities that otherwise may belong to AIG,” Verret said.

Having the trustees manage the trust to serve the interests of the Treasury Department “threatens the entire purpose of the trust itself, which is to create an independent buffer between the short-term political interests of an administration and the health of the financial system,” Verret said.

The trustee investment provision also raises questions, because it “permits the AIG trustees to, in theory, secretly invest personally in investment opportunities they learn about through their performance as trustees, without the necessity to inform or seek permission from AIG or the Treasury,” Verret said. “This strikes me as unnecessary and particularly dangerous given the potential for the AIG trust to serve as a model for other, similar documents.”

Links to a video recording of the hearing and hearing documents are available here.

Additional information was contributed by Allison Bell.