Lawmakers press Fed for AIG answers, overall price tag

WASHINGTON -- Lawmakers Thursday sharply criticized state and federal regulators for failing to prevent the meltdown of insurance giant American International Group aig, and for what they termed the secretive handling of its multibillion-dollar government bailout.

During a Senate Banking Committee hearing, lawmakers pressed the Federal Reserve to provide an overall price tag for the massive rescue effort, and to publicly name companies involved in financial transactions with AIG, which have benefited from the government efforts. Several senators warned they would not be able to vote for additional aid for the financial sector without a change in policy.

"The Fed and the Treasury can be secretive for a while, but not forever," said Sen. Richard Shelby, R-Ala. "You're going to be coming back for more money and more money."

Sen. Jim Bunning, R-Ky., threatened to do "anything possible to stop you from wasting the taxpayers' money on a lost cause."

The Fed and the Treasury Monday announced they would provide up to $30 billion in new aid to AIG, on top of nearly $150 billion in previous assistance. The government now has a roughly 80% stake in the firm, which has not used all the funds, and is trying to unwind AIG's balance sheet and sell off its profitable lines.

Fed Vice Chairman Donald Kohn said the central bank, which did not directly regulate AIG, felt it had no choice but to step in with aid because the company's failure could undermine markets and "greatly increase fear and uncertainty" about other financial firms. He noted that as the Fed in recent months has dramatically expanded its lending and other programs to bolster financial firms, it has also provided increased public data.

Still, Kohn told the committee he was reluctant to name AIG counterparties for fear of harming companies or scaring firms away from seeking needed federal assistance. "I would be very concerned … if we started revealing lists of names," Kohn said. "We need AIG to be stable."

Kohn said, however, the Fed would again review its policies.

During the hearing, state and federal supervisors admitted they could have done more to prevent the failure of AIG, which lost a record $60 billion in just the fourth quarter of 2008.

Scott Polakoff, head of the Office of Thrift Supervision, said regulators had not seen in time the huge risk that AIG was taking in deals based on complicated financial derivatives. Eric Dinallo, superintendent of the New York State Insurance Department, noted that AIG's problems did not flow from its insurance products, but from its huge exposure in its financial products division.

"Public confidence in what we're doing is at stake, and right now the public is deeply troubled," said Committee Chairman Chris Dodd, D-Conn.