It is good to see that AIG's decision to pay $165 million in bonuses to the very people who helped engineer the corporation's near collapse is under investigation by New York state Attorney General Andrew Cuomo. There has been tremendous push-back since the bonuses were reported, with President Obama telling his treasury secretary to "pursue every legal avenue to block" them. But if it turns out that the contracts guaranteeing the retention pay cannot be abrogated, the payments should come with a pink slip. Take this bonus and you are out the door.
In the fourth quarter of last year, insurance giant American International Group lost $61.7 billion, the largest corporate loss ever. To keep this "too big to fail" corporate leviathan from insolvency, taxpayers have so far plunked down $170 billion. The government now holds nearly an 80 percent stake in the company.
The Obama administration must use that investment as leverage to prevent any further bonus payments to AIG's financial products division. It was this unit that sold billions of dollars in credit default swaps — essentially guarantees against losses in exotic securities. When the securities tanked, AIG didn't have the funds to pony up.
In 2008, as things were already looking rocky, the executives in this derivatives trading operation were promised retention bonuses of a combined $165 million. AIG's government-tapped chief executive, Edward Liddy, just disclosed his intention to pay them, claiming he was legally bound.
But just as the government forced bailout recipients GM and Chrysler to renegotiate contracts with autoworker unions, so should it force further concessions here.
To average people who are worried about keeping their low-paying jobs and overpriced homes, the bonuses smack of overweening executive privilege. Just like the banks that received government bailout money but kept their corporate jets and lavish expense accounts, AIG's bonuses should be filed under "they just don't get it."
What the public sees are high-living executives being richly rewarded after bringing their company and the entire banking system to the edge of ruin. The real question is: Why do they still have a job?