AIG Stands For Awful, Insensitive Greed

Apparently AIG is contractually obligated to pay $100 million in bonuses to the division that lost them billions.

So Secretary Geithner told AIG CEO Edward Liddy that the these bonuses would not fly. Liddy said: sorry. We're contractually obligated to pay these bonuses. And if we don't we could open ourselves to legal liability. We could get sued.

Now, as a narrow legal matter, I don't doubt there is a contractual obligation. But bankruptcy disrupts contractual obligations. I'm actually not sure where employees with contractual bonuses come in line in a bankruptcy proceeding. But I bet it's really far toward the end of the line. And in business terms AIG was bankrupt. Not just bankrupt but driven to bankruptcy entirely by the division that these execs work at. It is only because -- rightly or wrongly -- the government believes that allowing AIG to founder would threaten the entire economy that we have agreed to let the taxpayer take the hit for all these reckless actions.

It's bad enough that AIG is doing this, but the real problem is that Timmy The Invisible Boy didn't anticipate this, nor can he stop this. This is Geithner's problem. If AIG is able to do this, that means the bailout was designed so badly that it's a failure.

This is pretty much prima facie evidence that Plan N needs to be applied as soon as possible. Outrage doesn't begin to describe this: it's more like applied extortion of the American taxpayer.

If Geithner can't even get this right, he needs to be replaced by somebody who can.

[UPDATE] Folks on both sides of the aisle are pissed.

White House officials and some members of Congress reacted strongly Sunday to news that insurance giant AIG had intended to pay out $165 million in bonuses and compensation. The company has received at least $170 billion in federal bailout money.

I can see the excuses even now. "Gosh, we're only using a tenth of one percent of the bailout money for bonuses. What's the big deal?"