Congressman Seeks Probe Of AIG Payouts

However, GAO also said that the Treasury Department should withhold providing the $30 billion in additional aid that has been promised AIG until the company agrees to take back millions in bonuses and negotiate cheaper exits from its financial contracts. The company said it is working on this.

The report recommended that the Treasury Department withhold the latest $30 billion of bailout money it committed to AIG until the financially troubled insurer agrees to "seek additional concessions from employees and existing derivatives counterparties."

The disparity issue was raised in a letter Mr. Frank sent last night to Treasury Secretary Timothy Geithner and Federal Reserve Board chairman Ben Bernanke.

Rep. Frank said he asked for the investigation because he has received a letter from the committee's ranking minority member charging that foreign institutions, which were counterparties to AIG, were paid in full while U.S. banks, which were counterparties to AIG, are now being asked to accept "severe reductions in the debt owed them."

The letter Rep. Frank forwarded from Rep. Spencer Bachus, R-Ala., said that, "I am being told in some cases that these U.S. banks are being asked to accept reductions of over 70 percent of the total debt owed them."

In asking for the investigation, Rep. Bachus said that the "disparity in treatment between foreign banks and U.S. banks is troubling, particularly since the U.S. banks now being asked to take such reductions are some of the very taxpayers that have been funding AIG."

In addition to the "clear inequity involved, this conduct obviously runs counter to our efforts to stimulate credit in the U.S. economy through bank lending," Rep. Bachus said in his letter.

The payments to foreign institutions Rep. Bachus is talking about were made between the time the U.S. first provided a lifeline to AIG on Sept. 16, 2008 until Dec. 31, 2008.

A detailed list of AIG counterparty payments was provided by the company last month. But, it only dealt with payments made with government funds through Dec. 31, 2008.

Since then, demands that counterparties accept reductions and detailed disclosure of the payments be made have come from members of Congress, the first time by Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, and Sen. Richard Shelby, R-Ala., ranking member, in a recent hearing.

In his letter to Secretary Geithner and Chairman Bernanke, Rep. Frank said, "I do not know what basis there is for the point he [Rep. Bachus] makes, but it is a serious issue and must be addressed.

"Clearly, any discrimination against American owned financial institutions compared to the treatment being received by foreign owned institutions would be unacceptable to the Congress, and I believe to the American public," Rep. Frank said.

Christina Pretto, AIG vice president for corporate media relations, said in a statement regarding AIG financial moves that "AIG is making appropriate business decisions consistent with the fact that the company has limited resources and one over-riding priority: to repay taxpayers."

The company she added, like other owners of commerical real estate "is workng with its partners and lenders to resolve the challenges by current conomic circumstances, particularly the difficulty of refinancing maturing debt."