AIG's role in market crisis under probe

Three former AIG chief executive officers, including its largest individual shareholder, Maurice "Hank" Greenberg, are scheduled to testify before the House Oversight and Government Reform Committee. The hearing is the second in two days into financial excesses and regulatory mistakes that have spooked stock and credit markets and heightened fears about a global recession.

The Federal Reserve rescued AIG with the USD 85 billion loan on September 16, one day after investment bank Lehman Brothers declared bankruptcy when the Government would not come to its aid.

Lehman Brothers' chief executive officer testified yesterday before the congressional oversight panel but did not shed much light on how the mid-September events cascaded into a collapse of credit markets requiring a broad bailout.

The Fed's move rescued the company from bankruptcy after the insurance conglomerate's exposure to enormous losses related to subprime mortgage securities forced it to the brink.

Problems at AIG did not come from its traditional insurance subsidiaries, but instead from its financial services operations, primarily its insurance of mortgage-backed securities and other risky debt against default.

Government officials feared that a panic might occur if AIG could not make good on its promise to cover losses on the securities.