As the CEO of the bailed-out insurance giant AIG faced furious lawmakers on Capitol Hill today, news emerged that some AIG employees had already come forward to return the controversial bonuses that have sparked nationwide outrage.
CEO Edward M. Liddy told Congress that he has asked executives who received $165 million in bonuses last week to "do the right thing" and return at least half the money. ABC News has learned that a number of them have volunteered to forgo their retention bonuses.
AIG may announce how many employees have agreed to give up their bonuses as early as Thursday.
The testimony of Liddy, who took over as AIG's CEO in September as part of the government's rescue efforts for the embattled firm, comes amid a furor that erupted over the revelation that AIG awarded fat retention bonuses to employees of the AIG financial products unit.
AIG's financial products unit is blamed for plunging AIG into the financial turmoil that eventually led the government to lend and invest about $170 billion in taxpayer money in the company.
"I've asked the employees of AIG financial products to step up and do the right thing," Liddy said. "Specifically I've asked those who received retention payments in excess of $100,000 or more to return at least half of those payments, some have already stepped forward and offered to give up 100 percent of their payments."
Liddy added, "We will work to ensure the highest level of employee participation in this effort in the days ahead and will keep the Congress and the American people informed of our progress."
The CEO said he was reluctant to reveal the names of those who agreed to give up their bonuses and those who didn't because public anger has been so great that they have received death threats.
One ominous threat called for AIG executives and their families to "be executed with piano wire around their necks." Another said that "if the government can't do this properly, we the people will take it in our hands and see that justice is done. I'm looking for all the CEO's names, kids, where they live, etc.," Liddy said.
"You have a legitimate request," he said, but "I want to protect the well-being of our employees."
Shortly before Liddy appeared before Congress,President Obama said that as infuriating as the bonuses are, "just as outrageous is the culture these bonuses are symptom of, the excess greed, excess compensation, the excess risk taking have all made us vulnerable and left us holding the bag."
"That kind of culture has to change," he said. The regulatory changes Obama is calling for "are going to put an end to that culture," he said.
Despite blaming corporate greed for the country's fiscal problems, Obama took responsibility for fixing it.
"The buck stops with me," he said today in an impromptu news conference.
The president said he is seeking an authority to oversee corporations like AIG "similar to what the FDIC has over banks." The authority would help in "preventing the kind of systemic risks like you've seen with AIG."
In his statement, Liddy called the the bonus payments to the financial products executives "distasteful," but says they were authorized by the company's managers before he took over six months ago to make sure AIG could retain those managers.
"Make no mistake, had I been chief executive at the time, I would never have approved the retention contracts that were put in place more than a year ago," he wrote.
Seven executives at the unit took home bonuses of more than $4 million each, with the top bonus recipient earning more than $6.4 million, according to New York Attorney General Andrew Cuomo.
But during the morning hearing, Liddy also defended some of those receiving retention bonuses, saying that they were "talented people" whose work was necessary to wind down more than a trillion in AIG business. He distinguished between those and the employees responsible for writing AIG's disasterous credit default swaps.
"The people who were primarily responsible for credit default swaps that brought us to our knees -- they're gone," he said.
Liddy added, "There's a cadre of people working at AIG very hard for the American taxpayer, trying to do everything we can to repay every single dollar. You would be proud of them."
During this morning's hearing, several members of Congress spoke out against the bonuses, including Rep. Barney Frank, D-Mass., the chairman of the House Financial Services committee. Frank said that the government, as the effective owner of AIG, should sue to recoup the money.
"What we ought to be doing is exercising our rights as these owners to bring lawsuits to say these people performed so badly, the magnitude of the losses are so great that we are justified in rescinding the bonuses," he said.
AIG CEO Shares Public's Anger
Liddy claims the company has slashed executive pay since being bailed out several times with public funds.
"In all, total 2008 compensation for the top 47 executives is 56 percent lower than their total 2007 compensation. My annual salary is $1. My only stake is my reputation," he writes.
In his prepared remarks for Congress, Liddy said he shared the public's anger over the company's "financial mess."
AIG's "missteps have exacted a very high price, not only for AIG but for America's taxpayers, the federal government's finances and the economy as a whole," Liddy says.
"We are acutely aware not only that we must be good stewards of the public funds that we have received, but that the patience of America's taxpayers is wearing thin," he said.
"The assistance has provided stability to the company and to the entire financial system," he wrote.
During a lengthy and often contentious exchange with members of Congress, Liddy said AIG could return to stability and profitability within two to three years, depending on global market conditions.
"I have much confidence that we can in fact rescue AIG," he said. "It is not a failed company. It is a failing company unless we do something about it and we in fact have a plan to do something about it."
AIG is actually using so far about $80 billion of the funds offered by the government, Liddy said. The company is working to repay the government, Liddy said, in part through the sales of some AIG businesses.
Will Taxpayers Get Their Money Back?
How successful AIG will be in repaying the government was called into question today by Orice M. Williams, the director of Financial Markets and Community Investment at the Government Accountability Office, who testified before the house this morning.
In prepared remarks, Williams said that AIG's ability to repay the government has "been impaired by its deteriorating operations, inability to sell its assets and further declines in its assets. All of these issues will continue to adversely impact AIG's ability to repay its government assistance."
In addition to Liddy and Williams, those testifying at today's House AIG hearing include Scott Polakoff, the acting director of the Office of Thrift Supervision; Joel Ario, the insurance commissioner for the Pennsylvania Insurance Department; and Rodney Clark, managing director of insurance ratings at Standard & Poor's.
AIG's financial turmoil has been blamed not only on the company itself but on the government, which critics say failed to adequately regulate the insurance giant and its financial products unit.
Watchdog Failed to Predict How Bad Things Were
Scott Polakoff, the acting director of the Office of Thrift Supervision, acknowledged failures by his office to predict the risks facing AIG's credit default swaps, financial instruments that essentially act as insurance policies on other investments.
"In 2004, we failed to predict how bad things would get in 2008," Polakoff said.
Meanwhile, Joel Ario, the commissioner for the Pennsylvania Insurance Department, touted the stability of AIG's traditional insurance businesses, which were separate from AIG's financial products unit.
Stable Insurance Companies, Shaky Hedge Fund?
Ario said he agreed with Federal Reserve chairman Benjamin Bernanke, who has described AIG as a hedge fund attached to a large, stable insurance company.
In an earlier interview with ABCNews.com, Ario said there is a "difference between the financial products which are regulated -- to the extent it was regulated at all, by the federal government -- and the insurance companies which are regulated by, we think, a very effective state-based regulatory system."
That hedge fund, said Ario, was AIG's financial products unit and that is "what's caused systemic risk in this case."
"The larger, stable insurance company is the 71 separate domestic insurance companies of AIG," Ario said. "They've had some difficulty because of the problems at the holding company level but basically they were not the cause of the systemic risk and they remain large and stable insurance companies."
The problem of "systemic risk" is what AIG and bailout proponents cite in arguments in support of the government's multibillion-dollar AIG rescue.
In a report submitted by AIG to the government earlier this year, AIG described a systemic risk as one that "could potentially bankrupt or bring down the entire system or market."
But critics say that there were better ways to manage the flailing insurance giant and potentially spend less in the process.
Hank Greenberg, AIG's former CEO who left the company in 2005, said in a recent interview with ABCNews.com that he didn't understand why the government decided to pay cash to AIG's counterparties -- the banks that did deals with AIG -- instead of offering them guarantees as it did in the case of Citigroup.
Citigroup, in addition to receiving $50 billion in government investments, was also provided some $300 billion in backing for troubled assets by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp.
Such guarantees for AIG, Greenberg said, would have meant a savings for the taxpayer and "would have made a hell of a difference for the company."
With reports from ABC News' Matt Jaffe, Ned Potter, Maddy Sauer, Jake Tapper and Z. Byron Wolf.