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The insurance giant American International Group (NYSE:AIG), who has received so far $173.3 billion (far more than has been offered to any other financial firm) in taxpayer bailout money from the U.S. Treasury and Federal Reserve - has plans to dole out more than $1 billion in bonuses and retention pay to employees. About $450 million - according to WSJ - will go to executives in the same business unit that wrote trillions of dollar’s worth of credit-default swaps that protected investors from defaults on bonds backed in many cases by subprime mortgages which later (Sept ‘08) brought the insurer to the brink of collapse.

Those payments are in addition to $121.5 million in incentive bonuses for 2008 that AIG will start making this month to about 6,400 of its roughly 116,000 employees. AIG is also making over $600 million in retention payments to over 4,000 employees.

Together, the three programs could result in roughly $1.2 billion in retention and bonus payments to AIG employees. [WSJ]

Chief Executive Edward Liddy told Treasury Secretary Timothy Geithner in a letter dated Saturday that he had “grave concerns” about the impact on the firm’s ability to “attract and retain the best and brightest talent” if employees believe that their “compensation is subject to continued and arbitrary adjustment by the US Treasury”. [ABC]

Liddy also said “the next payments to employees of the financial products unit — whose woes caused massive losses at the giant insurer — are due on Sunday, and added “quite frankly, AIG’s hands are tied.” [WSJ]

Has to be one of the lamest and worst excuses I have ever heard. This is nothing more than poor and myopic government appointments (Edward Liddy was installed at the insistence of the Treasury) and politics. After all, when Wallstreet is in bed with Washington politicians this is to be expected.

During an appearance on Sunday, on CBS’s “Face the Nation," Lawrence Summers, director of the White House National Economic Council said: “what’s happened at AIG is the most outrageous.” Having said that, he quickly added on ABC’s “This Week with George Stephanopoulos” program: “The government cannot just abrogate existing contractual obligations.”

Certainly avoiding shaking the confidence in the legal system and preventing non-equilibrium issues is a noble notion that must be respected. However, what thousands of frightened, angry, and newly poor Americans find even more outrages in this whole scenario, and more importantly - insulting to their intelligence - is the audacity of “AIG’s so-called best and brightest talents” asking taxpayers to subsidize these raises for their personal gain. The question is: on what moral authority?!!

The payment of so much bonus money to a constantly bleeding company, managed less than amateurishly by its top brass (including former co. executives who have already deserted the business after raking in millions for steering the company into bankruptcy) whose only priority is that of taking full advantage of the economic chaos, while claiming that they’re entitled to do so ; simply defies logic.

While the economic implications of liquidating AIG could be quite serious - considering the fragile state of the economy - these latest developments will almost certainly fuel more rejection and popular backlash against the government’s insistence to keep the international insurer afloat.

Source: AIG Giftwraps $450M