Editorial: AIG Bonuses

Of all the reasons for taxpayers to be outraged about AIG, executive bonuses are only a part of it.

The federal government deserves blame, too, for shoveling money with few conditions at the "too-big-to-fail" insurance firm since last fall.

President Obama this week belatedly sought to stop payment of $165 million in bonuses at AIG, which has received $173 billion in government bailout funds. But Obama couldn't keep up with rising taxpayer rage.

Congress did what it does best, grandstanding and threatening to impose a high tax of questionable legality on the bonuses. A contrite AIG CEO Edward Liddy, who didn't cause this mess, told lawmakers yesterday that he has asked anyone who received $100,000 or more to give back at least half of the money.

Liddy said that some bonus recipients have offered to give up all of their bonuses, and that he expects to get most of the money back.

Bonuses never should have been given to the people who helped to create the financial crisis. AIG's financial- products unit devised the infamous "credit-default swaps" that helped to bring the company to the brink of collapse, necessitating the bailout.

In 2008, this arm of AIG lost $40.5 billion. But employees at the business unit are receiving $450 million in bonuses under a retention program begun a year ago. The latest installment of those bonuses was paid out to 418 employees Friday; an additional $230 million is to be paid later.

Apparently, when Wall Street lost its way, it also lost any sense that "bonuses" should reward superior performance.

New York Attorney General Andrew Cuomo said 73 employees received bonuses of $1 million or more. One employee received $6.4 million. Most absurd of all, $33.6 million went to 52 people who have left AIG.

The argument against simply rescinding the bonuses would have made the late author Joseph Heller proud. We must pay extra to the people who devised the complex derivatives that led to financial catastrophe, the argument goes, because only they understand how to fix it. Now that's a Catch-22.

We're also told the bonuses can't be revoked because the employees have contracts. Litigation over lost bonuses could cost taxpayers more than the bonuses themselves.

Congress and the Obama administration should apply whatever pressure they can to compel every AIG executive to give back his bonus. If the executives have any shame left, they'll comply.

But Washington's role in this fiasco shouldn't be overlooked. Treasury Secretary Timothy Geithner and lawmakers have known about the bonuses for months.

Nobody in Washington insisted that AIG restructure the bonuses when President George W. Bush committed about $150 billion for the firm last year. Geithner, then head of the New York Federal Reserve Bank, was a leading proponent of the AIG bailout. If he had reservations about the bonuses, he could have done something about them at the time.

When Congress was completing the $787 billion economic stimulus legislation last month, lawmakers had a chance to tax AIG's bonuses, but exempted them.

Then there's the really big bailout money that AIG has sent all over the globe with little oversight from Washington. We know now that, since September, AIG has given at least $20 billion of U.S. taxpayer bailout funds to European banks. And it gave $13 billion to Goldman Sachs, which said previously it didn't need help to cover AIG's losses.

For months, the Treasury and AIG refused to even tell taxpayers where all the bailout money was going.

There's plenty of outrage to go around with AIG; executive bonuses are just the tip of the bailout iceberg.