By Daniel Wagner, Ap Business Writer – Tue Mar 31, 7:09 pm ET
WASHINGTON – The Treasury Department should deny American International Group Inc. a $30 billion "contingency" bailout until the company agrees to take back millions in bonuses and negotiate cheaper exits from its financial contracts, congressional auditors said Tuesday.
The Government Accountability Office report also found that payouts from the $700 billion financial system bailout nearly halted over the past two months. The slowdown occurred as Treasury Secretary Timothy Geithner came under fire for moving too slowly to announce financial rescue plans and assemble a team to oversee the largest government market intervention ever.
Treasury should withhold the latest $30 billion of bailout money it committed to AIG until the failed insurer agrees to "seek additional concessions from employees and existing derivatives counterparties," the GAO report recommended.
Congress and the public grew so outraged this month over AIG's awarding $165 million in bonuses that some called for Geithner's resignation. The Treasury and Federal Reserve have committed more than $182 billion to save AIG. Treasury now owns nearly 80 percent of the New York City-based company, and experts warn it may require even more money.
The Fed also took heat for refusing to name the indirect recipients of billions of dollars AIG was spending to wind down financial contracts. Despite warnings that such revelations would threaten the global economy, AIG eventually released the names, but the news was overshadowed by the bonus controversy.
At a Senate Finance Committee hearing Tuesday, Neil Barofsky, who audits bailout spending as special inspector general for the Troubled Asset Relief Program, said his office is investigating the issue, including who approved the payments.
As of March 27, Treasury had disbursed $303.4 billion from the TARP, according to the GAO report. That's only $9.7 billion more than Treasury had paid out by Jan. 23, at the start of Geithner's tenure.
The review by government auditors adds to criticism of Treasury's failure to manage expectations and move quickly to roll out its rescue programs.
"While articulating its plan was an important step, Treasury continues to struggle with developing an effective overall communication strategy that is integrated into TARP operations," according to the new GAO report. It says that could make it harder to build support for additional funding requests.
In the law authorizing the TARP money, Congress required the GAO to produce reports on the program's condition and internal controls at least every 60 days. The law also created a bipartisan Congressional Oversight Panel to report on Treasury's actions, the financial markets and the regulatory system. Besides conducting audits and investigations, Barofsky's office promotes transparency.
A Treasury spokesman, Andrew Williams, said in a statement that transparency and accountability are key concerns as the department tries to maximize its use of taxpayer money.
He said Treasury has made "significant progress in implementing every GAO recommendation" from previous reports, including hiring more staff for the new financial stability office and expanding a bank survey on lending and other activities.
At Tuesday's Senate hearing, Barofsky for the first time gave some clues about how banks were using their bailout dollars, including some that identified specific loans made possible through the TARP.
Despite questions from the oversight bodies, Treasury has not yet satisfied concerns that it runs the programs behind closed doors and doesn't require enough disclosure about how banks are spending billions in bailout money, the GAO report says.
To help the department meet standards for accountability and transparency, the report includes recommendations. Among them:
_Reporting the dividends Treasury has received from TARP participants.
_Hiring a communications officer to work in the office overseeing TARP.
_Scheduling regular meetings between Treasury officials and congressional leaders, and holding "town hall meetings with the public across the country."
Associated Press writer Anne Flaherty contributed to this report.