AIG (AIG): Paying Taxpayers Back With Taxpayer Money

Using the oblique reasoning techniques of politicians, the Administration has decided to get back the big bonuses that AIG(AIG) paid to some of its employees by withholding the next of many payments made to the insurance company. Without the infusions, the company would have gone under and may still falter in the future.

According to Reuters, the barely competent Treasury Secretary Timothy Geithner will insist that AIG pay back taxpayers the $165 million in bonuses before the government will send AIG its next $30 billion in bailout cash. The news service reports that Geithner wrote in a letter to Congress, “We will impose on AIG a contractual commitment to pay the Treasury from the operations of the company the amount of the retention awards just paid.”

The planned action is hardly more than spitting into a strong wind.

AIG’ paid out the bonuses, probably obtained by the employees fair and square in outrageous employment packages. No one seems to have disclosed the name of the people who signed the agreements on behalf of AIG, or who approved them in the first place. AIG’s clueless CEO, Edward Libby, will go before Congress to try to explain that.

The long and short of it is that AIG will pay back taxpayers for the bonuses using taxpayer money. AIG has no money of its own. It has planned to sell off some of its divisions to raise capital. With one or two exceptions, there have been no takers. Perhaps the cause of that is tight credit markets, or perhaps the AIG operations that are one the block are not terribly attractive.

After a day or two of thrashing AIG and its employees, Congress and the Treasury can pretend to use government bailout money to pay the government back. Or, they can hang on to the issue because it makes for a good political circus. If the latter path is the preferred plan, the business of putting hundreds of billions of dollars into the economy to save it from a deepening recession can be put off to the side of the agenda and the most important work of the Administration can be delayed.

Douglas A. McIntyre