House panel asks Paulson to testify in AIG probe

WASHINGTON (Reuters) - A House panel slated to look into the collapse and bailout of insurer American International Group has widened its probe, adding former Treasury Secretary Henry Paulson to its list of invited witnesses.

Paulson, who was asked on Friday to testify, would join his successor, Timothy Geithner, in explaining the roles they played in not disclosing payments AIG made to bank counterparties after receiving a taxpayer bailout.

Democratic Rep. Edolphus Towns, chair of the House Oversight and Government Reform Committee, labeled the payments a "backdoor bailout" for banks and scheduled a January 27 hearing.

Geithner has taken heat since e-mails surfaced last week that showed lawyers for the New York Federal Reserve advised AIG not to disclose payments that gave 100 cents on the dollar to banks holding AIG credit default swaps.

Geithner, who led the New York Fed at the time, has said bailout funds to AIG were not meant to help big banks and that he had no involvement in the decision to withhold the information from filings for securities regulators.

But he contends there were no legal means to prevent AIG from making the payments, and making the payments at par was the right thing to do.

Stephen Friedman, the former chairman of the New York Fed who now sits on Goldman Sachs' board of directors, was also added to the list of invited witnesses.

Spokesmen for Paulson and Friedman were not immediately available for comment.

Along with Geithner, Neil Barofsky, special inspector general for the Troubled Asset Relief Program; Elias Habayeb, former chief financial officer of AIG Financial Services Group; and Thomas Baxter, general counsel for the New York Fed, have been confirmed to testify.

The federal rescue of AIG funneled $180 billion of taxpayer money to the company in September 2008, a move criticized by the public and lawmakers.

Geithner insists "this crisis would have been much more damaging" without the bailout.