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There are preliminary reports from Bloomberg, that government officials are investigating the use of the AIG TARP funds and potential fraud at U.S. banks.   Neil Barofsky, special inspector general for the Troubled Asset Relief Program is heading a task force that is in the early stages of the investigations.

Lawmakers, frustrated with the cost of an AIG bailout that has expanded three times, have asked why about $50 billion was paid after the initial September rescue to banks that bought credit-default swaps from the firm. The audit will reveal who made “critical decisions” regarding the payments and provide an explanation for the actions, Barofsky said.

“To what extent did AIG pay counterparty claims at 100 percent of face value and was any attempt made to renegotiate and close out these claims with ‘haircuts?’” Barofsky wrote. “Questions concerning whether AIG paid more than necessary to counterparties and whether Treasury adequately monitored such payments are clearly relevant.”

AIG, under pressure to show how its $182.5 billion U.S. bailout was being spent, revealed on March 15 that banks including Goldman Sachs, Deutsche Bank AG and Societe Generale SA were top recipients.

Goldman Sachs

Barofsky will also examine if there was any review about the ability of banks “such as Goldman Sachs” to sustain losses on the swaps, he said in the letter.

Goldman Sachs had cash and liquid securities as collateral against its exposure to AIG and had bought credit-default swaps as protection where there was a difference in the collateral and what AIG owed, CEO Lloyd Blankfein said today at a conference sponsored by the Council of Institutional Investors.

“We spent over $100 million protecting our shareholders against a default by AIG,” Blankfein said in Washington. “So at the end of the day, we were sleeping very comfortably from a credit risk point of view with AIG.”

The lawmakers’ query concerns payments made to unwind some of AIG’s swaps, contracts similar to insurance that pay investors if bonds don’t pay as promised. AIG sold swaps to more than 20 U.S. and foreign banks. Christina Pretto, an AIG spokeswoman, didn’t immediately return a call for comment.

“We would like to know if the AIG counterparty payments, as made, were in the best interests of the taxpayers,” lawmakers led by Cummings said in a March 25 letter to Barofsky.