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.
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.