Threat Level Raised: AIG CEO Warns Of Dire Consequences If Company Fails

Edward Liddy, CEO of American International Group, warned a congressional panel Wednesday of "dire consequences" if the bailed-out insurer is allowed to fail.

Liddy's warning came in response to questioning by Rep. Paul Kanjorski (D-Penn.), chairman of the Financial Services subcommittee, who asked Liddy if he fully understood the consequences of the decision to pay $165 million in bonuses to AIG executives.

"It may have jeopardized our ability to get a majority of this Congress to support further largess, to provide funds to prevent a recession, depression or meltdown," said Kanjorski. "Are you aware that that's the consequence of your decision?"

"I am, but I think there's also a question of another relevance," said Liddy. "If something happens to AIG and it goes bankrupt or goes belly up, and puts at risk all the money that has already been put into it, that also can have dire consequences."

AIG reportedly made a similar threat to the federal government to obtain a recent $30 billion loan following first quarter losses that topped $60 billion.

"We've been discussing this issue at large with many of the people's staff who are represented here and with the Federal Reserve," said Liddy. He said that the Fed has known about the impending bonus payments "literally for three months."

Liddy told the panel that he still hopes to be able to pay back the government loans, but that hope rests on the fate of the market. "There is an exit strategy and I think it will work, but it is very market dependent," he said.