On the heels of the New York Federal Reserve obtaining shares of two American International Group subsidiaries, one U.S. senator wants a clearer picture of how the troubled insurer plan to repay taxpayers.

Chuck Grassley

Sen. Chuck Grassley (R-Iowa) sent a letter to U.S. Treasury Secretary Timothy Geithner and William Dudley, president and CEO of the N.Y. Fed, regarding the nearly $180 billion AIG received in bailout funds over the past year.

When the first batch of taxpayer funds was doled out in November 2008 – $40 billion from the U.S. Treasury – Grassley said he expressed his concerns that the American people would never be repaid.

“At that time, staff of the N.Y. Fed repeatedly insisted that the investments were sound and monies would be repaid,” he said in the letter. “Yet, the exact opposite is occurring.”

Grassley cited comments from the Government Accountability Office that the prospect of AIG repaying the government was “uncertain” and inquired why the Treasury Department changed its AIG preferred stock from “cumulative,” where missed dividends must be paid at a later date, to “non-cumulative,” where missed dividends need not be paid at all.

“There seems to be no reason for this give-away of taxpayer funds other than to manipulate the rating agencies into giving AIG an artificially higher rating than it deserved,” Grassley wrote. “However, I would greatly appreciate getting a detailed explanation about how and why this decision was made.”

The senator also wanted more details behind the recent agreement where AIG retired $25 billion in debt through distributing shares of its American International Assurance Co. and American Life Insurance Co. subsidiaries to the N.Y. Fed.

“Exchanging debt for equity still leaves taxpayer dollars at substantial risk,” he said. “I would like to know why you think acquiring these interests is a better deal for taxpayers than holding it as debt.”

Giving both parties a deadline of Dec. 9, Grassley is seeking details on the method the Treasury Department is using to appoint at least two members of the AIG board of directors and plans on both ensuring AIG begins repaying dividends on the preferred stock owned by the Treasury and recouping the billions in taxpayer money.

“Given the more than $120 billion in taxpayer money that’s been put on the line for AIG, the public deserves answers to these basic questions,” Grassley said in a statement.