Did the Federal Reserve gag American International Group (AIG)? Emails first reported by Bloomberg News show that the insurer wanted to disclose information about the payments it made to such banks as Goldman Sachs (GS) and Deutsche Bank (DB) to cancel some financial deals. But, lawyers for the New York Fed, which was led by Timothy Geithner at the time, told AIG to pull that information out of a report it was going to issue.

The AIG bailout is being questioned by watchdogs, which accuse the Fed of doling out billions of dollars to banks that weren't necessary -- especially now that big bonuses are piling on.

Last year, a U.S. District Court in Manhattan secretly froze $2 billion held in a Citigroup (C) account. The money was believed to have been held on behalf of Iran, through Luxembourg's Clearstream Banking S.A. In what the Wall Street Journal reports could be the largest seizure of Iranian assets abroad since the Islamic revolution of 1979, several parties are lining up to claim the cash. And, it looks like the battle is headed for trial.

The order to freeze the funds was executed 18 months ago by the U.S. District Court for the Southern District of New York and hasn't been made public. In issuing the legal order, the court used information from the U.S. Treasury Department. Though the money is frozen, the struggle is heating up.

Last year, the Treasury Department received warrants when it injected billions in JPMorgan Chase & Co. (JPM). JPMorgan received $25 billion in bailout money in October 2008 and paid the money back last June.

The government received 88.4 million warrants. They were sold at auction at a price of $10.75. The conversion price for the warrants is $42.42 a share. That means when the stock reaches that price, the warrants can be converted into stock worth $3.75 billion. The Treasury received $936 million from Thursday's auction.

The federal government is a step closer to having vast powers over financial services firms. The U.S. House of Representatives Financial Services Committee voted on Wednesday to give regulators the authority to carve up financial firms when economic stability is at stake. The bill would also open up the Federal Reserve to much more congressional oversight. This comes more than a year after firms such as AIG (AIG) and Citigroup (C) needed profound financial intervention to prevent a broad collapse of the global economic system.

Of course, the measure is getting mixed reviews. The Independent Community Bankers of America, a lobbying group for smaller entities, says it will "create a more equitable financial system and hold too-big-to-fail firms accountable for the risks they pose." Meanwhile, the Financial Services Roundtable, which represents larger banks, such as Bank of America (BAC), says it will "stifle creativity and the free-flow of ideas and capital."

If mortgage companies start to feel like they're losing elbow room, it's probably because they're starting to get nudged by the Obama administration. The folks in the White House are planning to kick off a campaign to squeeze mortgage companies to lower payments for even more borrowers who are in trouble. The $75 billion program, financed by taxpayers, to keep homeowners from falling into default appears to be in trouble.

Mortgage lenders have increased their efforts to modify borrowers' mortgages, but most of them are still in a trial stage, which will last up to five months. Only a handful have been made permanent, which isn't good enough for Washington. The Treasury Department's assistant secretary for financial institutions, Michael S. Barr, told the New York Times, "The banks are not doing a good enough job," continuing, "Some of the firms ought to be embarrassed, and they will be."

34 banks opted not to pay their quarterly dividends to the Treasury Department in August -- that's up from the 19 deadbeats for the month of May.

The biggest offenders were American International Group (NYSE: AIG), CIT Group Inc. (NYSE: CIT), First Bancorp (NASDAQ: FBNC) , Sterling Financial Corporation (NASDAQ: STSA), and UCBH Holdings, Inc. (NASDAQ: UCBH).

The Treasury Department provided the USA Today with a pretty condescending explanation: "For some banks, it may be prudent to exercise their right not to pay dividends in a particular month, and we respect their right to do so. To draw any broader conclusions about the state of the banking sector from one month is highly premature and speculative."

The Congressional Oversight Panel reported on Wednesday that most of the $23 billion in taxpayer funds provided to General Motors and Chrysler is unlikely to be repaid. The Congressional Budget Office estimated in June that taxpayers would lose $40 billion of the first $55 billion provided to the auto industry.

The Treasury Department acknowledges that most of the $23 billion provided by the Bush Administration is likely gone forever, but added that there is a "reasonably high probability of the return of most or all of the government funding" provided by the Obama administration.

Three quarters of the fiscal year is comfortably behind us, and the U.S. budget deficit has already passed the $1 trillion mark. In June alone, the federal government spent faster than it earned to the tune of $94.3 billion. The result is below the median predicted by 30 estimates according to a Bloomberg News survey of economists -- projections ranged from $70 billion to $109.3 billion for the month. This is the first time we've had a June deficit since 1991.

In June 2008, the deficit for the month was a much more modest (but still sizeable) $33.5 billion. But last month spending spiked 37% to $309.7 billion, while revenue plunged 17% to $215.4 billion.

So how does the rest of the year look? Pretty grim.

JPMorgan Chase & Co. (NYSE: JPM) and the U.S. government can't seem to agree what the bank's stock warrants are worth. As a result, JPM has asked the Treasury Department to auction off the warrants publicly in order to determine a fair market price.

The JPM warrants were issued to the government under the terms of its TARP loan. Bailed-out banks have the option to repurchase their own warrants, but only if they can strike a deal with the feds regarding a reasonable price. However, many firms have complained that the Treasury is seeking too high a price for the assets -- putting executives in the awkward position of claiming that their stock just isn't worth that much.

In choosing the auction alternative, JPMorgan is waiving its right to repurchase its own warrants (it could potentially bid through the public auction process, but company executives have decided not to do so). If the stock warrants are successfully auctioned off to a third party, their exercise would be dilutive to existing shareholders.

My, how a day of reaction can change things. Late last night, Treasury Secretary Tim Geithner announced that American International Group (NYSE: AIG) will repay the taxpayers up to $165 million that it doled out as bonuses.

According to Geithner's letter to congressional leaders, the government can't block the payments -- which were contractually agreed to before the government's bailout.

However, the public's "considerable outrage" over the payments was an epiphany for AIG, causing the bank to agree to pay the Treasury an amount equal to the payments. The Treasury will then deduct that amount from the $30 billion in government assistance that the company is slated to receive.

From the taxpayer dollars at work department: Fresh off of receiving billions of dollars in taxpayer cash, American International Group, Inc. (NYSE: AIG) has decided that it will pay $450 million in retention bonuses to 400 employees in the financial products unit. That just so happens to be the part of the company that was involved with the credit default swaps that destroyed the company.

In a statement, AIG said that "We adopted and disclosed this contractual retention program months before the government provided support to AIG. We did so because it was clear, given the market environment, that we would need to retain employees to manage the complex issues arising in our Financial Products business, which we are now unwinding."

Senator Carl Levin is planning to use the power of the subpoena to gain access to a $25 billion contract governing the doling out of bailout funds to Citigroup (NYSE: C).

So far, the Treasury Department has only provided the public with a form that recipients of bailout funds are required to fill out. "I'm going to subpoena a document which should not have to be subpoenaed," Levin told reporters. "I want to see whether the actual contract with Citibank is the same as the form."

It's hard to imagine what possible right banks like Citigroup have to privacy when they are showing up looking for taxpayer cash. Is there any reason why details on the terms shouldn't be made available? I can't think of one.

Levin said that he wants to see whether Citigroup was required to agree to helping homeowners avoid foreclosure.

It is a bad idea because it will slow the process of getting money from the Treasury to needy firms. That negates one of the key aspects of the bailout program. It is supposed to move fast to stay ahead of the national liquidity crisis.

Paulson may be asking to change that. According to The Wall Street Journal, "The Treasury Department, signaling a new phase in its $700 billion financial-rescue plan, is considering requiring that firms seeking future government money raise private capital in order to qualify for public assistance."

While it may seem sensible to get smaller banks and insurance companies, the next group of firms likely to get Treasury help, to ask private investors to come in side-by-side with the government, the program would be flawed for two reasons.

The first is that, in a failing economy, nothing may bring private equity out of its shell even if buying into a financial firm getting a huge slug of government money might seem attractive in normal times. But, these are not normal times and panic keeps capital from making investments which should appear attractive.

The second reason that the plan is flawed is the private equity deals can take many weeks or even months to close, and private investors may want different terms than the federal government is getting. That turns what could be a quickly fashioned lifeline from Treasury into a prolonged process which could damage the companies it seeks to save.

It is probably a good thing that Paulson's tenure is over in two months. His new plan could could wreck what it is trying to fix.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Our introduction to the Treasury Department official in charge of the $700 billion bailout fund -- Who will spend our $700 billion? Meet 35-year-old Neel Kashkari -- generated a lot of interest and commentary. Many of the comments have been negative and cover a wide range of fear and loathing, from cracks about Goldman Sachs (NYSE: GS) running the country and stealing all the money, to insults directed at Kashkari's lack of hair and ethnic background. (For the record, his family is from India, not Iran, and Neel is apparently a Hindu name, not a Muslim one, although I haven't found any definitive proof of his religious background.)

Looking around the web, I found lots of talk about Kashkari, including one curious comment at Huffington Post that Kashkari has a special arrangement with respect to his salary. Somehow, according to this commentator, Goldman Sachs is paying him billions of dollars to do his job. He will supposedly collect these riches when he steps down, presumably after having rendered super-secret services to the financial oligarchs who apparently own our country.

The writer of the comment offered no proof, and I have to admit that I'm a little skeptical (about the salary, not the oligarchy). But it did get me thinking about how much government officials are being paid to handle all this bailout money.

According to this Bloomberg report, Kashkari earned $738,000 in salary and bonus at Goldman before joining his former boss Hank Paulson at Treasury in July 2006. His title is now Assistant Secretary (Assistant Secretary of the Treasury for Financial Stability and Assistant Secretary of the Treasury for International Economics and Development, to be precise) and he is, obviously, a federal employee now. So he must earn the standard salary for an Assistant Secretary.