March 19 (Bloomberg) -- American International Group Inc. Chief Executive Officer Edward Liddy finds himself fighting to prevent the insurer from tarnishing his reputation, a fate suffered by his three predecessors.

Facing another barrage of congressional criticism over bonuses for AIG managers yesterday, Liddy repeatedly reminded lawmakers that he took the job after the U.S. government stepped in with an $85 billion loan in September. He’s agreed to a salary of $1 this year.

“He’s probably got one of the worst jobs in America right now,” said Robert Haines, an analyst with CreditSights Inc., in a Bloomberg Television interview. “He’s not getting paid. He’s one of the most vilified CEOs in America.”

The length of Liddy’s tenure hasn’t stopped lawmakers, pundits and a predecessor from taking aim at his credibility and questioning his ability to do the job. Representative Elijah Cummings, a Maryland Democrat, first called for Liddy’s resignation a month into the job. Yesterday’s hearing included a congressman who accused Liddy of malfeasance, and concluded by asking if he had “anything to say for yourself.”

“These contracts were all put together before I was at AIG,” said Liddy, 63. “I would not have done these contracts this way. And this whole arrangement, if it existed, would have looked a whole lot different. So I really do take offense, sir, at the use of --"

“Well, offense was intended,” said Representative Stephen Lynch, a Massachusetts Democrat. “So you take it rightfully, sir.”

Angry Reaction

AIG’s $165 million in bonuses after the taxpayer-funded bailout triggered a public outcry led by President Barack Obama, who called the payments “inappropriate.” Yesterday, Liddy said the bonuses have brought death threats, including one that said executives and their families should be “executed with piano wire around their necks.”

Liddy told the hearing that he had asked employees paid bonuses exceeding $100,000 to “do the right thing” and repay half. Some had already stepped forward and offered to give up 100 percent of their payments, Liddy added.

Douglas Poling and some other AIG executives in the financial products group have agreed to return the bonuses, the Wall Street Journal reported, citing a person familiar with the matter. Poling, an executive vice president for energy and infrastructure investments, had received the biggest single payment at $6.4 million, the report said.

Messages left today for Poling and AIG spokeswoman Christina Pretto by Bloomberg News weren’t returned.

Out of Retirement

Liddy helped oversee the spinoffs of Allstate Corp., Discover Financial Services, real estate broker Coldwell Banker Corp. and securities brokerage Dean Witter when he was an executive at Sears Roebuck & Co.

Liddy became CEO at home and auto insurer Allstate for eight years after the spinoff before stepping down at the end of 2006. Then-Treasury Secretary Henry Paulson chose him to run AIG last year. Paulson knew Liddy from the executive’s service on the board of Goldman Sachs Group Inc., where Paulson was CEO.

“Six months ago, I came out of retirement to help my country,” Liddy said at yesterday’s House Financial Services subcommittee hearing in Washington. “As a businessman of some 37 years, I have seen the good side of capitalism. Over the last few months, in reviewing how AIG had been run in prior years, I have also seen evidence of its bad side.”

Liddy’s Critics

Cummings demanded Liddy’s resignation in October after reports that AIG was planning to host top members of its sales force at a series of events at resort hotels. Former AIG CEO Maurice “Hank” Greenberg, credited with building the company into the world’s largest insurer during his 40-year tenure, has said Liddy isn’t equipped to run the firm.

Regulators have revised AIG’s bailout three times to ease the original loan terms and increase the package to about $173 billion. Liddy said after the first rescue that the funds were “enough.” After the second revision, Liddy said the firm was “on the road to recovery.”

To meet its obligations to the government, AIG under Liddy has reduced the risk from derivative bets, made agreements to sell units for more than $2.3 billion and cut staff at its money-losing financial-products business. The insurer has also adopted executive-pay restrictions, eliminated federal lobbying activities and stopped political contributions, Liddy said yesterday.

Record Loss

Losses on securities tied to U.S. real estate and corporate debt continued to grow as Liddy worked, leading AIG this month to post a $61.7 billion fourth-quarter loss, the worst in U.S. corporate history. The announcement of the loss accompanied the third revision to the government rescue, and prompted a statement from the U.S. Treasury that the insurer may need “further government support.”

Liddy joins two predecessors in misjudging the impact of the financial crisis. Martin Sullivan, who was CEO for three years until June, had said losses tied to housing would be “manageable.” His replacement, Robert Willumstad, failed to deliver a turnaround plan in time, and was ousted in September when the company agreed to turn over an 80 percent stake to the government.

Sullivan’s predecessor Greenberg was forced to retire in 2005 amid state and federal probes into accounting and sales practices. Greenberg denies any wrongdoing in a New York state civil lawsuit filed in May 2005, which is pending. Then-New York Attorney General Eliot Spitzer dropped portions of the suit in 2006 that included four other allegations.

Repaying Government

In an exchange of letters with Timothy Geithner last week, Liddy reminded the current Treasury secretary that he is getting no bonus and has attended none of the resort conferences.

“My only goals are to have AIG repay, with interest, to the maximum extent possible, the assistance the American taxpayers have given it, and to continue AIG’s main insurance companies as strong, thriving businesses and contributors to the economy,” Liddy wrote. “My only stake is my reputation.”

To contact the reporter on this story: Erik Holm in New York at eholm2@bloomberg.net.

Last Updated: March 19, 2009 13:37 EDT