Washington

Senate Banking Committee leaders are asking why American International Group Inc. counterparties received payments for mortgage securities that had not defaulted.

Lawmakers at a committee hearing on insurance regulation today urged Troubled Asset Relief Program overseers to investigate allegations that counterparties of AIG, New York, were paid dollar-for-dollar for their troubled investments in securities that were still performing.

Sen. Christopher Dodd, D-Conn., chairman of the panel, said that, while it is a “secondary issue” to the heat generated by disclosure that AIG has been paying bonuses to the people who worked for AIG’s failed AIG Financial Products division, he is interested in determining why the CDS counterparties received 100% of the insurance AIG had provided through the credit default swaps issued by AIG to guarantee the collateralized debt obligations of their counterparties.

In response, Sen. Richard Shelby, R-Ala., the highest ranking Republican member of the committee, asked Dodd to have the TARP inspector general look into “where all this [TARP] money is going.”

The issue was brought up at the hearing after AIG disclosed Sunday that it had paid $52 billion to AIG Financial Products unit CDS counterparties and counterparties to other AIG Financial Products transactions.

The federal government has created entities that are in the process of unwinding the transactions.

The report released Sunday showed Goldman Sachs Group Inc., New York, has received almost $13 billion in support as a result of the rescue efforts.

Some of the other major recipients include Soci?t? G?n?rale S.A., Paris; Deutsche Bank A.G., Frankfurt, Germany; Barclays P.L.C., London; Merrill Lynch & Company Inc., New York; Bank of America Corp., Charlotte, N.C.; and UBS A.G., Zurich, Switzerland.

Under ordinary circumstances, the issuer of a CDS only has to pony up more collateral when its credit rating deteriorates, as AIG was forced to do last September when its troubles began to grow.

AIG’s problems with raising new capital to provide more backing to the counterparties whose CDOS it had insured was what forced the government to help the company last fall.