Both Senate Banking leaders cool to U.S. help for AIG

WASHINGTON (Reuters) - Both leaders of the U.S. Senate Banking Committee on Tuesday expressed reservations about the federal government intervening to help insurer American International Group Inc (AIG.N).

Connecticut Democratic Sen. Christopher Dodd, chairman of the financial market oversight panel, said he is generally "skeptical" about any potential federal bailout or bridge loan for AIG.

He told reporters he wants the Bush administration to consult with him and other lawmakers before making any move.

"I'm willing to listen. I'm skeptical ... I want to have them come to me as they're thinking about it, not announce it and expect us to necessarily go along with it.

"I would say to them now, don't announce that without talking with us up here and telling us why that is necessary."

Alabama Sen. Richard Shelby, the top Republican on committee, said he flatly opposes any federal bailout for AIG.

Asked about a bridge loan or some other support for the company, Shelby told reporters, "Absolutely not ... I hope that they will not bail out, or get a bridge loan, to AIG."

Shares in the company closed down 21.2 percent at $3.75 on the New York Stock Exchange amid fears that it could be the next financial giant to succumb to a global capital crunch stemming from the collapse of the U.S. housing market bubble.

Speculation gripped the markets all day that Washington might come to the rescue of the insurer, which is facing a liquidity crisis stirring fears it could go bankrupt.

The government earlier this year engineered the buyout of investment bank Bear Stearns by JPMorgan Chase & Co (JPM.N). More recently, it seized control of mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N).

Then the government last weekend refused to extend federal aid to rescue investment bank Lehman Brothers Holdings Inc, which then filed for bankruptcy.

Shelby argued for limiting any further federal intervention and for the financial markets to work out their own problems.

"When they bailed out Bear Stearns, then Lehman Brothers I'm sure thought they would be fine," Shelby said.

"They drew the line in the sand on them (Lehman), but they haven't drawn the line as of yet on AIG -- and AIG's not even a bank ... They're an insurance company regulated basically by the state of New York. Are they important? Absolutely.

"Do they have a lot of good parts and are they all over the world? Absolutely. Could they fail without pain? No.

"But what do you bail out next? Will it be Ford Motor Co, General Motors, Chrysler? ... How much money and risk does the taxpayer want to take on? I'll tell you, not a lot more."

He added, "I hope the Congress will not intervene in AIG or in any of these situations. The market ought to handle it."

(Reporting by Kevin Drawbaugh; editing by Carol Bishopric)