If these bonuses were going to one of the divisions that is profitable, and they were significantly less than the profit, then I wouldn't have a major problem with it. But they're not.
According to CNN, they are going to one of the very groups responsible for the shambles they current AIG is:
I understand that the new AIG CEO may be in a bit of a bind here. If they are contractually obligated to pay the bonuses, and the recipients are not willing to renegotiate those contracts, then they should pay them.
In a letter to Geithner, obtained Saturday by CNN, AIG Chairman and CEO Edward Liddy said his company was taking steps to limit compensation in AIG Financial Products -- the British-based unit responsible for issuing the risky credit default swaps that have brought the company to the brink of collapse.
In the letter to Geithner, Liddy said the unit's 25 highest-paid contract employees will reduce their salaries to $1 this year and all other officers in the unit will reduce their salaries by 10 percent. Other "non-cash compensation" will be reduced or eliminated. But he told Geithner that some bonus payments are binding legal obligations of the company, and "there are serious legal, as well as business consequences for not paying."
But that doesn't have to let them off the hook.
It occurred to me that the simplest way to deal with it -- without breakin any contracts -- is with the tax code. There's no reason Congress can't craft an income tax provisions specifically for bonuses like this, and tax them abt 99.9% or something like that.
This way, people still recieve their bonuses.
AIG doesn't have to break the contracts.
And the Treasurey recovers funds.
Fortunately, Senator Chris Dodd is already on it.
Later, Dodd told CNN he is considering an unusual approach to get the bonus money back.
"One idea we're kind of thinking about is a tax provision," the Connecticut Democrat said. "We have a right to tax. You could write a tax provision that's narrowly crafted only to the people receiving bonuses. That's a way maybe to deal with it."
Dodd said the notion is in the "earliest of thinking" and has not been settled on as a way to resolve the issue that has set off outrage in Washington and across the country.
We may not be able to allow AIG to fail. But we can make sure we don't reward failure.