Page last updated at 09:03 GMT, Tuesday, 26 January 2010

AIG bail-out investigations launched

AIG sign
AIG had to be rescued in 2008

The US bail-out watchdog has announced it is launching two investigations into the government's rescue of insurer AIG.

Neil Barofsky, special investigator general for the US's Troubled Asset Relief Program (Tarp), questioned the government's role in the bail-out.

He is appearing before a House Committee looking into the AIG bail-out in 2008 on Wednesday.

AIG was initially bailed out for $85bn (£52bn), but its total rescue package has since amounted to more than $180bn.

"Issues have come to light that call into question whether the government has been, and is being, as transparent as possible with the American people," said Mr Barofsky in a prepared testimony.

"Documents have come to light that were not provided to the [watchdog] audit team during the course of the audit."

Transparency sought

The committee is investigating why the New York Federal Reserve, then headed by US Treasury Secretary Timothy Geithner, paid AIG business partners face value for assets so they would cancel contracts with the insurer.

A report published by Mr Barofsky's office in November last year criticised both the New York Fed and the US Federal Reserve for not using their "considerable leverage" to force AIG's counterparties to accept less for these assets, thereby wasting taxpayer money.

As a result, 16 banks, including Goldman Sachs, Deutsche Bank, Societe Generale and Royal Bank of Scotland, were paid more than $62bn.

"If anyone at the Fed thought that this investigation will stop after Wednesday's hearing, they are completely mistaken," said committee member and California Republican Darrell Issa.

"There has been a widespread effort by officials at the New York Fed to thwart transparency, and we will continue to pursue this investigation for as long as it takes to get the truth."



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