WASHINGTON - THE struggling insurance giant American International Group has already used up three-quarters of a US$123 billion (S$185 billion) government rescue loan, the Washington Post reported on Friday.

Just over a month after the US government stepped in to save AIG from collapse, the newspaper cited sources close to the arrangement as saying it had drawn down significant amounts of two separate interventions.

'AIG has borrowed US$90.3 billion from the Federal Reserve's credit line as of yesterday (Thursday), the bulk of it to pay off bad bets the company made in guaranteeing other firms' risky mortgage investments,' the newspaper said.

'It has drawn down US$18 billion of the additional US$38 billion the Fed offered in credit liquidity for losses the company was suffering in securities lending.'

Far more than other insurers, AIG has been a big player in a complex market called credit default swaps (CDS), financial instruments in which Wall Street companies take out a form of insurance against the risks of bond defaults.

These products, often linked to the US real estate market, are at the heart of the current banking crisis and have exposed AIG to massive losses.

The US Federal Reserve agreed in mid-Sept to the loan of US$85 billion to stave off the collapse of AIG.

The deal gave the US government a 79.9 per cent stake in the insurance behemoth, which it considered too big too fail.

On Oct 8, the Federal Reserve said it had authorized a new US$37.8 billion cash infusion, as AIG came under fire for a lavish spa retreat paid for by the company after its rescue by the government.

The newly nationalised company has been accused of treating executives to a lavish spa retreat costing hundreds of thousands of dollars, just days after the US government rescued the firm.

AIG has said no executives from headquarters had attended the event which was for independent agents that bring business to the company. -- AFP