President Obama has asked Treasury Secretary Tim Geithner to look at compensation being paid to AIG (AIG) employees for work done in 2008 and to pursue “every legal avenue to block these bonuses and make the American taxpayers whole.”

New York Attorney General and future governor Andrew Cuomo says he may subpoena AIG over the bonuses.

There is nothing wrong with either move. Politicians know what makes the electorate mad. Taking taxpayer bailout money and paying it to wealthy bankers looks bad.

But Administration adviser Lawrence Summers made a good point recently. If the CEO of AIG is right, the bonuses were part of contracts that the employees had, contracts that may well have pre-dated the government takeover of the insurance company. Summers’ point was the that the government does not want to do anything that would make business think that the Administration does not believe in the rule of law.

There is another aspect to the uproar. Although it is not clear at this point whether the AIG staff making the bonuses in question made profits for the company or not, most Wall St. bankers and traders who are paid well are paid well because they make huge profits for their firms. It would not be surprising if a few hundred people at some large investment banks don’t bring in most of the profits. That production can be especially important when the firms are taking huge write-off from their toxic paper portfolios.

It may be a shame than money that was meant to keep AIG afloat went to pay bonuses, but, they may have been deserved. Even if they were not deserved, they may have been an obligation. It should be fairly easy to find that out without a lot of table thumping.

Douglas A. McIntyre

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