After news that Insurance giant American International Group Inc. (AIG) will be ordered to return to the Treasury Department $165 million — the amount it just payed out in executive bonuses — AIG CEO asked Wednesday afternoon for some of the recipients of those bonuses to return half the money. The company is under intense fire for awarding the bonuses while being kept afloat by more than $170 billion in bailout funds. A tranche of the $165 million in retention bonuses were contractually committed to employees within the financial products division — “the very division most culpable for the rapid deterioration of AIG,” wrote Treasury Secretary Timothy Geithner in a letter to Speaker of the House Nancy Pelosi. Although considerably outraged, Geithner said the government couldn’t legally block the payments, which were awarded under contracts signed before the government stepped in with billions of dollars to prevent AIG from going belly up last year. But as of Wednesday, those who have received bonuses of $100,000 or more have been asked to return at least half those payments, AIG CEO Edward Libby told a House sub-committee during a special hearing Wednesday. “Some have already offered to return 100 percent,” he said. The hearing was a long, grueling one for CEO Liddy who took the reins of the troubled firm after the bonuses in question were negotiated in April 2008. He was drilled by a number of congressional leaders and even asked by Chairman of the House Financial Services Committee Barney Frank to submit the names of those executives who did not comply with the request to return their bonuses. The bottome line is the Treasury wants to insure that taxpayers are compensated. In Geithner’s letter to Pelosi, the plan was to  impose on AIG a contractual commitment to pay the Treasury from the operations of the company the amount of the retention awards just paid. “In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments,” Geithner wrote. “We should look at AIG as owner of the company,” said Rep. Barney Frank (D-Mass.) at a recent press conference — the U.S. government currently owns about 80 percent of AIG. “The time has come to exercise our rights as owner rather than interfering with contracts between two parties. You didn’t perform, you don’t get bonuses;” a theory which he reiterated at the hearing Wednesday. Going forward, future AIG bonuses will be subject to the strict executive compensation provisions enacted by Congress in the American Recovery and Reinvestment Act, Geithner said. “We will continue our aggressive efforts to resolve the future status of AIG in a manner that will reduce the systematic risk to our financial system…” Write to Kelly Curran at kelly.curran@housingwire.com. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade