WASHINGTON–Treasury Secretary Tim Geithner said late yesterday that his agency is working with the Department of Justice to determine "what avenues" can be used to recoup taxpayer dollars used to pay bonuses to executives of American International Group's troubled Financial Products unit.

He also said that, in order to ensure taxpayers are compensated for any monies "we cannot recover," the government will impose on AIG a contractual commitment to pay the Treasury from the operations of the company the amount of the [$165 million] retention awards just paid."

Moreover, "we will deduct from the $30 billion in assistance an amount equal to the amount of these payments," Mr. Geithner said.

At the same time, Mr. Geithner also said that in criticizing the bonuses paid to AIGFP executives, Americans should not "lose sight" of the fact that under current law, federal officials don't have the authority to take control of troubled financial institutions that aren't banks.

Even the tough guidelines on executive pay put into the economic stimulus bill by Sen. Chris Dodd, D-Conn., "allow for the payment of contracts signed before the act went into effect," he noted.

"This situation dramatically underscores the need to adopt, as a critical part of financial regulatory reform, an expanded 'resolution authority' for the government to better deal with situations like this," said Mr. Geithner.

"Such a resolution authority" for regulating financial institutions, like AIG, whose failure would pose a significant risk to the financial system, he wrote, should include a comprehensive and broad set of tools that would enable the government to regulate AIG in a way that will protect taxpayer interests and innocent customers.

The secretary's comments were made in letters sent to House Speaker Nancy Pelosi, D-Calif.; Senate Majority Leader Sen. Harry Reid, D-Nev.; Senate Minority Leader Sen. Mitch McConnell, R-Ky.; and John Boehner, R-Ohio, House minority leader.

Mr. Geithner also said that he had received a commitment from AIG Chairman and Chief Executive Officer Edward Liddy that the company would work to "scrap or cut" hundreds of millions of dollars in additional bonus payments due this year and in the future.

Mr. Liddy has "committed himself to do this on terms that are consistent with the executive compensation guidance for firms receiving government aid mandated by provisions of the stimulus act enacted by Congress last month," Mr. Geithner said in the letter.

Meanwhile, Sen. Charles Grassley, R-Iowa, sent in a request to the Inspector General of the Treasury Department asking him to investigate what role, Treasury Department officials played in the decision by American International Group to pay bonuses to AIG Financial Products officials.

Sen. Grassley's request was made to Inspector General Eric Thorson in a letter last night.

He asked that the inquiry determine the terms by which the department provided funding to AIG, and "particularly whether or not Treasury officials made any effort to forestall payments of bonuses or demanded waivers of bonuses prior to releasing any taxpayer funds."

He also asked the IG to determine when the legal obligations were incurred and whether these bonuses are compelled by contracts between AIG and its employees.

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Geithner, Justice Dept. Join Hunt For AIG Bonus Money Recall

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