Sources in the Obama administration Tuesday said that despite previous media reports administration officials did not know until a couple weeks ago that the officials of the controversial AIG Financial Product Division were set to receive $165 million in bonuses on March 13. It was just this month, administration sources told ABC News, that officials of the New York Federal Reserve Bank -- after studying AIG's more than 100 compensation policies for more than 116,000 employees throughout the world -- informed the Treasury Department of the $165 million in bonuses pending for the controversial Financial Products Subsidiary. Treasury Secretary Tim Geithner was alerted last Tuesday; he phoned AIG CEO William Liddy on Wednesday evening to protest the bonuses, sources told ABC News. On Thursday, Secretary Geithner informed a senior White House official about the controversy, aides passed the information on to President Obama later in the day. How the Obama administration was caught flat-footed by this controversy dates back to last Fall, when the New York Federal Reserve Bank -- then run by Geithner -- stepped in to give AIG a high-interest loan to help prevent the company from going under, as Lehman Brothers was doing at the time. In late October, the $700 billion Troubled Assets Relief Program passed Congress, which includes rules about executive compensation but nothing about retention bonuses. The Fed and Treasury Department soon began pumping more money into AIG, and the NY Fed began studying the compensation policies on the books -- while also making efforts to save banks and rescue the economy. But by then Geithner's nomination was pending and he had recused himself from dealings with AIG. AIG provided information about the company's myriad compensation packages to the New York Fed, but officials described the information as extremely complex and not easily understood. It wasn't until this month, sources said, that the New York Fed alerted the Treasury Department that $165 million in retention bonuses for FP officers were about to walk out the door. "Everyone knew that there were retention bonuses on the books," an Obama administration source said, "but no one knew about the $165 million for the Financial Products division" until this month. Geithner called Liddy on Wednesday, March 11, Liddy -- appointed to run AIG September 2008 -- told the Treasury Secretary that he knew about the bonuses and had already talked to company lawyers to try to end them. But, Liddy said, he'd been told that going after the bonuses -- for work from 2008 -- would actually cost the government more money because of resulting lawsuits. The Treasury Secretary expressed concern, pointed out that AIG also had 2009 retention bonuses set up, not to mention $121.5 million in executive bonuses that Geithner wanted trimmed. On Thursday and Friday, administration sources said, Geithner urged Treasury Department lawyers to try to figure out a way to block the bonuses. But the lawyers ultimately came to agree with AIG's lawyers; that their hands were tied. Liddy and Geithner talked again on Friday, the day the $165 million in retention bonuses were being cut, and the Treasury Secretary Geithner acknowledged he did didn't think he could block the payments going out the door. But he told Liddy he was going to make efforts to, at a minimum, recoup that money as part of the agreement for the pending $30 billion the government announced in aid for AIG on March 2. Liddy agreed to trim or reduce executive compensation for the top 47 officers of the company, to reduce and renegotiate 2009 bonuses -- tying them to performance, specifically to what officers are doing to unwind the company. Geithner asked Liddy to codify their agreement in a letter, which Liddy sent the Treasury Secretary on Saturday. Throughout the weekend, Treasury Department and White House lawyers explored various options to see if they could block the bonuses, as they continue to do so today, aides said.