By insisting that $165 million in retention bonuses had to be paid to members of its notorious Financial Products unit, American International Group appears oblivious to the fact that as the poster child for the bailout generation, doing business as usual undermines public support for its rescue and threatens its long-term future.
Last week, I said AIG had become something of a laughingstock–the butt of increasingly vicious jokes in the media, which is partly why its healthy insurance units are desperately trying to re-brand.
Now the situation is even uglier, as the company suffers the wrath of a growingly frustrated and furious public, expressed through politicians worried they will be tossed out with the rest of the bums responsible for our economic debacle.
The normally unflappable President Barack Obama scolded AIG while ordering Treasury Secretary Tim Geithner to "pursue every legal avenue" to block or recover the bonus funds, demanding to know how the firm's leaders could possibly "justify this outrage to the taxpayers who are keeping the company afloat?"
Meanwhile, New York Attorney General Andrew Cuomo seized the spotlight, issuing subpoenas to probe whether AIG's bonus payments were based on fraud.
The harshest comment came from Sen. Chuck Grassley, R-Iowa, who suggested AIG officials "follow the Japanese example and come before the American people, take that deep bow and say I'm sorry," and then "either resign or commit suicide."
That suggestion, while extreme, shows how angry everyone is about seeing "bonus" money paid to those perceived to have brought our economic house into ruin, then shamelessly asking taxpayers to save them.
I was in favor of the bailout when it was proposed, agreeing with the conventional wisdom that allowing AIG to go into bankruptcy could start a domino effect that might take down the entire financial system.
However, I'm having second thoughts–if only because it doesn't seem possible for AIG to function as a government-controlled entity. AIG is publicly-owned now in the strictest sense, with taxpayers the shareholders and politicians the company's de facto board of directors. The problem is that politics and business don't mix.
AIG argues it must honor its contracts and keep key employees happy to stay in business so it can maintain its value, sell its assets at a fair price and repay its government loans.
But politicians, channeling taxpayer fury, insist AIG can no longer follow standard operating procedures–whether by rewarding top producers with trips to fancy resorts or paying fat bonuses while millions lose their jobs.
Where do we go from here? With AIG and Uncle Sam effectively joined at the hip, and $170 billion of federal funds already committed to keeping the company in business, there may be no turning back.
But that doesn't mean AIG can afford to ignore political realities, especially since they might need additional taxpayer support. There had to have been a better way of resolving this situation than doling out massive bonuses and shrugging off the public outcry.
Perhaps AIG's bonus babies could have placed their treasure in escrow, payable once the company rights itself and becomes free of government control. That would have sent a powerful signal of good faith and demonstrated that we are indeed all in this mess together, prepared to make sacrifices. Instead, all the public perceives is greed, greed and more greed.
The bigger question, however, is whether government aid remains a lifejacket or has become a suffocating straightjacket that could ultimately sink AIG.
Sam Friedman is NU's Editor In Chief. To respond to his column, e-mail sfriedman@nuco.com, or go to his blog at www.property-casualty.com.
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