In AIG flap, it's not just about bonuses anymore

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Too connected?

Democrats, meanwhile, heaped the blame on decisions made during the Bush administration. With Geithner at his side Wednesday, before boarding his Marine One helicopter to start a trip to California, President Obama told reporters at the White House, "I have complete confidence in Tim Geithner and my entire economic team. . . . You know, he is making the right moves in terms of playing a bad hand."

Still, some critics on the left -- including organized labor officials and prominent House Democrats -- suggested that bailout decision-making to date had been sullied by a Wall Street bias afflicting both the current Treasury secretary and his predecessor.

"AIG was too well-connected to fail," said Rep. Brad Sherman (D-Sherman Oaks) during a contentious House hearing in which AIG's Liddy was grilled by lawmakers.

Goldman Sachs became the subject of controversy this week when AIG revealed that it had given the company $13 billion in taxpayer bailout money to repay its collateralized debt obligations.

Goldman spokesman Michael DuVally says that figure is too high and that the correct number is closer to $8 billion. He dismissed suggestions that Goldman played a role in designing the bailout terms, or its bonus provisions.

While Goldman is healthy and has said it does not need bailout funds, it did accept taxpayer-funded payments from AIG.

"The government made a policy decision to support AIG as a way to contain systemic risk," DuVally said. "We were entitled to additional collateral under the trading agreements that we had with AIG."

Since the bailout for AIG was authorized in September, the once-successful insurance giant has passed along about 30% of the $170 billion it received from taxpayers to Goldman, Deutsche Bank, Merrill Lynch and other entities, including municipalities.

One of the largest amounts -- $11 billion -- went to the Societe Generale Group, a Paris banking and financial services company. The funds paid to those firms were released to make whole the buyers of AIG credit insurance.

The decision to make the across-the-board payments at 100% of the original value has drawn criticism since Sunday, when AIG reluctantly released the list of companies that had received taxpayer aid.

One prominent economist said he thought the Wall Street pedigree of decision makers in the Bush and Obama administration had hampered their judgment.