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One day after former Lehman Brothers CEO Richard Fuld testified before the House Committee on Oversight and Government Reform, former executives from American International Group Inc. (AIG) got their turn on what many media outlets described as the hot seat, answering questions about business practices and spending, and executive compensation.

        The CBS Evening News (10/6, story 3, 1:00, Couric) reported that "former CEOs Martin Sullivan and Robert Willumstad were grilled, [yesterday], accused of keeping auditors in the dark as losses mounted at the insurance giant." Maurice "Hank" Greenberg, who ran AIG for 38 years until 2005, did not attend the hearing due to illness.

        One week after receiving $85 billion in loans from the government in the form of a bailout, "AIG executives were living it up," according to ABC World News (10/7, story 2, 2:35, Gibson). "AIG executives treated themselves to a week-long trip to this luxurious resort, the St. Regis Hotel and Spa at Monarch Beach, California. Just back from the brink of bankruptcy, AIG spent $440,000 on oceanfront rooms, rounds of golf, and more than $23,000 for the resort's spa and salon."

        NBC Nightly News (10/7, story 3, 2:30, Williams) added that "members of Congress pummeled [the] two former AIG CEOs, who basically blamed the near-collapse of their company on forces beyond their control," much like Fuld did one day earlier. And, much like Fuld, Sullivan took responsibility for his actions. He was shown saying, "I take responsibility for everything that occurred as my tenure as AIG's president and chief executive." But, when asked if he is considering returning his "golden parachute," Sullivan said, "No, I'm not, sir." Conversely, Willumstad "says he will not take $22 million in severance."

        But, the Washington Post (10/8, D1, Whoriskey) reports on the front page of its Business section, neither "Sullivan nor Willumstad acknowledged making any mistakes. 'Looking back on my time as CEO, I don't believe AIG could have done anything differently,' Willumstad said." Sullivan said, "I have spent my entire adult life in service to AIG, and I am heartbroken at what has happened." These comments echoed comments made by Fuld yesterday. The Post comments, "The committee members, barely concealing their frustration, seemed stunned by the duo's refusal to find fault with their own performances."

        The Wall Street Journal (10/8, Pleven, Craig) adds that at the hearing, AIG executives were portrayed "as running a high-rolling organization that glossed over warnings about the risks that helped necessitate a government rescue -- and continued to reward executives even as the big insurer headed toward a cliff." The committee questioned Sullivan about "a meeting of AIG board members" at which an outside auditor warned that AIG "'could have a material weakness' in its risk management." Yet, "less than a week" later "Sullivan told investors...that AIG was 'confident in our marks and the reasonableness of our valuation methods.' Two months later, AIG disclosed that its auditors had found a material weakness in its accounting controls, and said it would lower the valuation on complex derivatives by billions of dollars." In response, "Mr. Sullivan said that when communicating with investors, he said what he truly believed to be accurate at the time," also a similar answer to that given by Fuld in Monday's testimony. Committee members also "challenged" Sullivan about his recommendation "that the insurer exclude massive unrealized losses tied to a key unit, AIG Financial Products, when calculating incentive pay for top executives -- including himself."

        On the front page of its Business Day section, the New York Times (10/8, B1, de la Merced, Otterman) notes that the two former CEOs were "berated...for [the] large pay packages." Sullivan and Willumstad "blamed wider market tremors for the company's stumbles. They also attributed AIG's $25 billion in write-downs to mark-to-market accounting rules, which forced the company to take paper losses that led to debilitating credit downgrades." Those arguments, however, were "dismissed" by lawmakers, "citing testimony from a former chief accountant for the Securities and Exchange Commission." The committee focused on "focused on efforts by company management to shield inquiries into the London subsidiary that had underwritten the derivatives contracts that became devalued during the global credit crisis." AIG's auditor, PricewaterhouseCoopers, "and an independent accountant complained of a lack of access to the London unit and its leader, Joseph Cassano."

        Cassano's $1-million-per-month consulting fees also drew scrutiny from lawmakers, with Bloomberg News (10/8, Son, Woellert) noting that the panel "expressed amazement" that Cassano "was allowed to make bets that nearly sank a company with more than $10 billion in profit in both 2005 and 2006 from traditional life insurance and property coverage." Representative John Sarbanes (D-Md.) said, "It seems he single-handedly brought AIG to its knees." Yet, "Cassano, who stepped down in March, is still being paid...by AIG for consulting." Sullivan said that "AIG is retaining Cassano because 'it was important to keep the existing employees' in the unit."

        Much like many of the other media outlets, the AP (10/8, Taylor) focuses most of its attention on the "posh California retreat for its executives." While "the retreat didn't include anyone from the financial products division that nearly drove AIG under," the panel still was "enraged over" the outing. "But Eric Dinallo, superintendent of the New York State Insurance Department, said he could see the value of such a retreat under the circumstances. 'Having been at large global companies and knowing what condition AIG was in...the absolute worst thing that could have happened' would have been for employees and underwriters in its life insurance subsidiary to flee the company," he said. He told the committee that "the concept of bringing all the major employees together...to ensure that the $85 billion could be as greatly as possible paid back would have been not a crazy corporate decision."

        For their part, Sullivan and Willumstad "said they would not have condoned such an expensive meeting on their watch only days after the company escaped bankruptcy," in a Washington Times (10/8, Lengell) report.

        Forbes (10/8, Ackerman) comments that the "testimony...did little to redeem the insurer's image." The executives "had a chance to set the record straight on how it contributed to the credit market meltdown. But the exposed revelations just seemed to dig the insurer into a bigger hole."

        Fortune (10/8, Bandler, Boyd), CQ (10/8, Mattingly), the Politico (10/8, Reilly), and U.S. News & World Report's (10/7) The Home Front blog also covered the hearing.

In a front-page story, the Wall Street Journal (10/8, A1, Hilsenrath, et al.) reports, "The Federal Reserve said it will bypass ailing banks and lend directly to American corporations for the first time since the Great Depression." This move by the Fed "aimed to unclog the market for 'commercial paper.' ... Companies ranging from AT&T Inc. to General Electric Co. to United Parcel Service Inc., along with many U.S. and European financial firms, tap this $1.6 trillion market for short-term loans to fund their day-to-day operations." Under its plan, the "central bank, with the backing of the U.S. Treasury," will "make loans directly to companies in this market." This "potentially puts taxpayers on the hook for new losses," since "many commercial-paper loans are not secured by collateral." Even though "the Fed took a variety of steps to minimize its exposure, including asking borrowers to pay upfront fees, the government could suffer losses if corporate defaults rise and those steps prove insufficient." This "historic and potentially risky move of lending to nonfinancial corporations, the latest in a string of extraordinary steps taken by the Fed over the past month, carries the government deeper into the role of propping up private markets."

        According to the Washington Times (10/8, Sands), even "a presidential pep talk and [this] dramatic move by the Federal Reserve to boost business lending could not shore up sagging U.S. markets as the Dow Jones Industrial Average plunged more than 500 points Tuesday to a four-year low." In stating that it "will begin purchasing 'commercial paper' -- the short-term money companies borrow to meet basic needs such as payroll and inventory," -- the Federal Reserve invoked "an obscure Depression-era emergency law."

        The AP (10/8, Aversa) reports that "the action makes the Fed a crucial source of credit for nonfinancial businesses in addition to commercial banks and investment firms -- and also exposes it to risk because so much of the debt would not be backed by collateral." Still, the AP adds that "credit markets, clenched up for weeks now, relaxed somewhat after the Fed's move." The Financial Times (10/8, Baer, Birchall) explains that "for the hundreds of U.S. companies dependent on short-term loans to fund their businesses or extend credit to customers, the Federal Reserve's plan to buy commercial paper could help reduce borrowing costs that have threatened to crimp profits."

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The AP (10/8, Abrams) reports, "The Internal Revenue Service, seeking to make cash more available during the current credit crunch, has issued a rule making it easier for U.S. corporations to bring home money made by their foreign subsidiaries." The agency "temporarily expanded a 1988 ruling allowing corporations to borrow money held by foreign subsidiaries without having to pay the 35 percent corporate income tax." Under the current rule, a company's foreign units could "make a tax-free loan to the company as long as it is repaid in 30 days. Over a one-year period, the company can have outstanding loans from its subsidiaries for up to 60 days." But the "temporary rule change would allow the U.S. company to keep cash from a single loan for up to 60 days." In effect, "the company could have borrowed money for up to 180 days in a one-year period." But in order to "avoid being subject to taxation, the money would have to be paid back and could not be used as distributions such as dividends."

On the front of its Marketplace section, the Wall Street Journal (10/8, B1, Matthews) reports that "Alcoa Inc. reported a 52 percent decline in profit," in part because of "falling aluminum prices and higher costs." Also, the company "announced it would halt unessential capital projects, reduce capacity, and suspend its share-buyback program." The Journal notes, "The report is grim news for other mining and metal manufacturers," since "Alcoa, the first blue-chip to release quarterly results, is considered a bellwether of earnings to come."

        The New York Times /AP (10/8, B5, Lovering) notes, "As a global economic slowdown crimps demand for virtually every commodity, aluminum prices have dropped 32 percent from an all-time high of about $3,380 per metric ton on July 11. Copper, lead, nickel, and other metals have also tumbled." Among other companies that are "facing the difficult market conditions" are "Rusal, the world's top aluminum producer, and Rio Tinto Ltd., the mining giant, which acquired Canada-based Alcan Inc. last year." For the quarter, Alcoa "posted earnings of $268 million, or 33 cents per share, for the three months ended Sept. 30."

        Forbes (10/8, Ackerman) quotes Alcoa CEO Klaus Kleinfeld as saying, "Recently, aluminum prices have fallen steeply and demand has softened further, while input costs remain high." Kleinfeld added, "The resulting margin squeeze will have a greater impact going forward, but will be somewhat mitigated by the easing of energy prices and a stronger U.S. dollar."

        "While the results for engineered products rose, demand for cast or machined aluminum parts was down 36 percent from the previous quarter," according to MarketWatch (10/8, Langlois). "Alcoa blamed the decline on tough times facing the automotive and airline industries."

The Financial Times (10/8, Hall) reports that on Tuesday, the French government "ordered companies to rein in executive pay and curb reward for failing top management or face legislation early next year." A new industry code of conduct was published Monday by Medef, the French employers body, and the Association of French Private Business, which "businesses were told to comply with." The code "would restrict severance payments for departing bosses and the award of stock options." The Times notes that "several European governments have vowed to act against boardroom excesses, but so far only the Netherlands has taken action, introducing higher corporate taxes on generous 'golden parachutes' and large pension contributions under a bill still going through parliament."

The New York Times (10/8, B8, Story) reports, "At the stroke of midnight on Wednesday, the short-sellers will return to Wall Street." But now, the "question is, what will they do when they get there? Nearly three weeks ago, regulators abruptly banned short sales of financial stocks to protect companies that had come under siege in the stock market." Critics had complained that short-sellers "contributed to the declines by betting against the companies' shares." When the SEC's "ban expires Wednesday night, shorters...will be free to ply their trade again." Despite the controversy surrounding short sales, "few expect their return, on its own, to spark another precipitous plunge in the stock market." Since the ban was imposed on Sept. 22, "financial shares have plunged 23 percent...suggesting that the short-sellers might not have played such a big role in the declines."

        According to USA Today (10/8, McCoy), "markets braced for Wednesday night's scheduled expiration," which will release the temporary "ban on short sales of more than 900 financial stocks." In anticipation, "investment analysts and advisers gave differing predictions on the potential impact." Like the Wall Street Journal, USA Today reports that "many market players predicted the expiration would have little immediate impact, despite the stock market's volatility."

        Other investors "say the unprecedented ban on short selling...did more harm than good at a time of historic market volatility," the AP (10/8, Bruno, Gordon) notes.

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The Wall Street Journal (10/8) editorializes, "It's a sign of our tumultuous times that Wachovia, a bank that has nearly been shuttered by regulators twice in the past two weeks, is now the target of a mammoth tug-of-war between Wells Fargo and Citigroup." Calling the legal battles between Citigroup and Wells Fargo a "mess," the Journal asserts that "if the agenda is to shore up Citi and send a signal that it is, in fact, too big to fail, there are more direct means available to get that done." The Journal argues that "if the feds want to prevent a full-scale rescue of Citigroup, now might be a good time to take Treasury Secretary Hank Paulson's new powers out for a spin," and if "Citi needs to raise capital...the Treasury [should] inject some, along with appropriate housecleaning on the management side and upside for taxpayers." The Journal concludes that the government's current role in "the Wachovia deal is riskier business, and could make any future intervention more expensive for everyone."

The Washington Post (10/7, B2, Helderman) reported that a Maryland "nonprofit group has returned $500,000 in public money to [Prince George's] county after an audit found that it failed to file proper federal tax forms and that a former board member had opened bank accounts using the group's identification number without informing some others on the board." The Central Prince George's County Community Development Corp. also failed to "follow county guidelines as it made $500,000 in grants to other charities in Prince George's this year." The audit revealed that the nonprofit did not "use a point system to rank applicants" when it awarded grants, and that it "awarded money to some groups without receiving evidence of the organizations' not-for-profit status." The County Council auditors concluded that because of the nonprofit's "weak internal financial controls," it should receive no additional money from the county "until the problems were solved."

CFO Magazine (10/7, Taub) reported, "The economic slowdown it taking a toll even on the usually buoyant confidence of executive recruiters." ExecuNet's September Recruiter Confidence Index showed that "49 percent of 161 executive recruiters were confident or very confident that the executive employment market will improve in the next six months, down from 53 percent in August, and 64 percent at the end of the second quarter." But "shorter-term confidence...was much weaker." Only "30 percent of recruiters were confident or very confident that the executive employment market would improve in the next three months." According to ExecuNet, "that these levels were comparable to those at the end of the 2003-2004 recession."

The AP (10/8) reports, "The Federal Reserve cut a key interest rate by half a percentage point Wednesday to steady an economy teetering on the kind of financial collapse that America suffered in 1929." The Fed "ratcheted down [the] key rate by 0.5 percentage point to 1.5 percent." This move "revives the central bank's rate-cutting campaign, which had been halted in June out of concerns that those low rates would worsen inflation. Since then, however, economic and financial conditions have dangerously deteriorated, forcing the Fed to reverse course."

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