US Financial Bailout Watchdog Examining AIG Payments

The in-house watchdog for the U.S. Treasury Department’s massive financial rescue program is examining billions of dollars in counterparty payments made by bailed-out insurer AIG to major banks, such as Goldman Sachs, according to a letter obtained Tuesday.

American International Group, which has received $180 billion in taxpayer aid since last fall to save it from collapse, disclosed on March 15 that it had paid more than $90 billion to Goldman and to European banks including Germany’s Deutsche Bank, France’s Societe Generale, and Britain’s Barclays.

Neil Barofsky, inspector general of the Treasury’s Troubled Asset Relief Program, said in a letter to Rep. Elijah Cummings that the inquiry will look at whether AIG paid “counterparty claims at 100 percent of face value and was any attempt made to renegotiate and close out these claims with ‘haircuts.”‘

In addition, Barofsky said his office would examine whether assessments were “conducted of the health of and total exposure of risks to the counterparties such as Goldman Sachs, Barclays and others,” said the letter, released by Cummings’ office.

Barofsky said in his April 3 letter to Cummings, a Maryland Democrat, that the inspector general’s office had already begun an audit of the matter Thursday.

The bailout of AIG has been the most controversial of the financial rescue efforts launched under the TARP, formed last year by the Bush administration and continued by the Obama administration amid a severe financial crisis and a deep economic recession.

Cummings and 26 other members of Congress wrote to Barofsky in March questioning “the identity of counterparties to certain transactions who received taxpayer ‘bailout funds.”‘

“In essence, we would like to know if the AIG counterparty payments, as made, were in the best interests of the taxpayers who provided the funding and in the best interests of reestablishing long-term economic stability,” the letter siad.

The chief financial officer of Goldman Sachs, David Viniar, in a discussing the bank’s AIG dealings in a March 20 conference call, told reporters: “We don’t think we did anything wrong.”

AIG could not immediately be reached for comment.

(Additional reporting by Joe Giannone and Lilla Zuill in New York; Editing by Leslie Adler)