What Does AIG's Future Hold?

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If investors really want to get angry, they should take a look at how management of AIG has been handling its asset sales. A big part of AIG's restructuring plan involves selling profitable units to pay back the government. But these asset sales have been a disaster, despite the presence of veteran insurance CEO and dealmaker Paula Reynolds, who was brought into AIG to handle the restructuring. For instance, the sale of AIG's Asian businesses (AIA) was announced in October and financial details were supposed to be available to bidders by the end of that month. Instead, the prospectus wasn't available until February, and it was a scant 65 pages long and contained information only through August 2008. Bidding, unsurprisingly, was light and the unit was taken off the market. "There is no coherent effort internally to sell the assets in an organized M&A process," says Steve Czech, head of hedge fund SJC Capital Partners. Congress needs to ask what went wrong. "The process to gauge market interest in AIA was very thoughtful and deliberate," says AIG spokesman David Monfried. "This is the most difficult market in years and years, and to date nobody has the ability to raise the capital that reflects the worth of this company."

Counterparty Hullabaloo

The asset sales are small change compared to the $100 billion plus paid to AIG's counterparties. This information, released by AIG on Mar. 15, confirmed what many suspected since October—that a large portion of the government's investment in AIG became a backdoor bailout to the world's banks. Goldman Sachs (GS) got $13 billion, Société Générale (SOGN.PA) received $12 billion, and $12 billion went to Deutsche Bank, nearly 100% of what they were owed. That strikes some financial professionals as egregious. If AIG had filed for Chapter 11 bankruptcy in September, those same firms would have gotten in line with other creditors and received pennies on the dollar. There's no reason AIG couldn't have negotiated better terms, says Lerrick. "Everyone should have [been] marked down 20%."

Most important, Congress needs to know how Liddy and his team plan to get taxpayers out of this mess. Some experts argue that AIG should have filed for Chapter 11 in September, and that bankruptcy remains the best option. "Dissolution would be painful," says Martin Weiss, chairman of the Weiss Group, a research group. "But it would not take a Herculean effort to rearrange things and shift responsibility to a receiver." AIG, however, continues to operate under its original plan to raise cash by selling off successful businesses, liquidate AIG Financial Products, and pay the government back. Legislators will likely demand specifics on how that's going to happen and when.

And if Liddy can't do that, some in Congress may begin to demand someone who can.

Levisohn is a staff editor at BusinessWeek covering finance and personal finance.