AIG's $165 million bonus payout has produced "a palpable wave of anger," admits Edward Liddy, the insurance giant's government-appointed CEO. But in an op-ed for the Washington Post, Liddy says that paying employees now will prevent "undue risk" and help AIG wind down the most dangerous positions on its book. He adds that "had I been chief executive at the time, I would never have approved the retention contracts."
AIG became so hazardous to the global economy by expanding its business to include a credit-default swaps portfolio, which Liddy calls "the root of the company's troubles." It's already wound down $1 trillion but needs to keep on its current employees to shut down the rest. In the long run, Liddy promises, compensating AIG's employees will enable the company to pay back its debts: "In America, when you owe people money, you pay them."