U.S. lawmakers seek broad GAO review of AIG

WASHINGTON (Reuters) - Two U.S. lawmakers on Thursday asked a congressional watchdog agency to examine how tens of billions of dollars of federal aid to embattled insurer American International Group was handled.

The chairman of the U.S. House of Representatives Oversight and Government Reform Committee, Edolphus Towns of New York, and Rep. Elijah Cummings of Maryland said the Government Accountability Office's help was needed to help clear the air.

"We request the GAO undertake a full review of all aspects of federal assistance -- whether through the Federal Reserve, the U.S. Department of the Treasury, or any other public entity -- provided to AIG from 2007 to the present," the two Democrats said in a letter.

They also said the GAO should look into the question of who decided that AIG should not be allowed to file for bankruptcy.

The House Oversight Committee is holding hearings next week at which Treasury Secretary Timothy Geithner is to testify. It has also asked former Treasury Secretary Henry Paulson to testify.

Towns and Cummings want the GAO to examine payments by AIG to counterparties of credit default swaps and to look into who decided to pay banks at 100 cents on the dollar and what steps were taken to block full public disclosure of the payments.

Over $180 billion of federal aid was committed for bailing out AIG and lawmakers are angry that some of the money may have been used to pay bank counterparties. Towns has complained that it appeared to be a "backdoor bailout."

There have been allegations that Geithner, who headed the New York Fed before taking over Treasury, had a role in advising AIG not to disclose the payments at par to banks, which included Goldman Sachs.

Geithner has denied it and Treasury says he was recused from issues involving AIG when he was nominated last November for the Treasury post.

Earlier this week, the New York Fed delivered over 250,000 pages of documents to the oversight committee. Fed Chairman Ben Bernanke said on Tuesday he would welcome the GAO reviewing the central bank's action in bailing out AIG.

Bernanke said the Fed extended a credit facility to AIG "to prevent the imminent disorderly failure of the company," which he said would have risked making a severe financial crisis even worse.

A GAO official said on Tuesday it would have to review the Fed's request for an audit.

(Reporting by Glenn Somerville; Editing by Leslie Adler)