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Watchdog: Gov't may have overpaid to bail out AIG

WASHINGTON (AP) - A government watchdog is raising questions about the way officials handled the multibillion dollar bailout of insurance giant American International Group Inc.

Special Inspector General Neil Barofsky says the officials mismanaged an initial rescue attempt and may have overpaid other banks to wind down AIG's business relationships.

The Federal Reserve Bank of New York - headed at the time by now-Treasury Secretary Timothy Geithner - paid AIG's business partners full face value for securities. That was so they would cancel insurance contracts that AIG had written in order to ease the firm's liquidity crunch. But Barofsky says at least one of those partner banks offered to cancel the contracts for less.

That means officials may have spent billions more than necessary to cancel debt insurance contracts with banks including Goldman Sachs Group Inc. and others.

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