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Those officials say they believe that the tight restrictions will not only hurt AIG's chances of making a recovery, but that the burden will eventually trickle down to the taxpayer.

"It's a tight line for the government to walk," says Rob Haines, a senior analyst at CreditSights. "From an economic perspective -- ignoring political considerations -- easing up at AIG makes sense. They have seen an exodus of executives already and, if the government is ultimately going to be paid back, it's in their interest to stabilize the company and management team."

AIG has received up to $180 billion of federal aid to date, which includes more than $80 billion in loans. AIG is currently majority-owned by US taxpayers.

Republican Representative Spencer Bachus (R-AL.) this week wrote a letter to Treasury Secretary Timothy Geithner demanding information on a handful of US banks that he suspects are being forced by AIG to significantly reduce the amount of debt owed to them.

Bachus, who is on the House Financial Services Committee, says that in some cases AIG is pushing for a more than 70% reduction of the total debt owed to these US banks.

AIG shares had fallen to a fresh two-week low, down 2.2% to $34.51 in thin early afternoon trading Tuesday. AIG trading volumes were at 4.2 million shares compared to the three-month average of 37.8 million shares.

AIG is now down 0.79% at $35 a share in after hours trading.

-- Reported by Andrea Tse in New York

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LOAD-DATE: November 25, 2009

AIG's Allies to Pay Czar: Back Off! November 25, 2009 Email   Print   Free Newsletter Copyright 2009 TheStreet.com, Inc.All Rights Reserved TheStreet.com November 24, 2009 Tuesday 16:43 PM EST SECTION: NEWS & ANALYSIS; Insurance LENGTH: 323 words HEADLINE: AIG's Allies to Pay Czar: Back Off! BYLINE: Andrea Tse, TheStreet.com Staff Reporter. Copyright 2009 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. (Updated prices and added additional information) New York, NY (TheStreet) -- AIG(AIG:NYSE) may have found allies in the government. According to those close to the situation, Federal officials have been pressuring the Obama administration's pay czar to relax executive compensation restrictions at AIG, the Wall Street Journal reports.

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