When word got out that insurance powerhouse AIG was going ahead with massive bonuses to some executives, despite the company's acceptance of federal bailout money, the reaction from the White House and Congress was immediate.
"There are a lot of terrible things that have happened in the last 18 months, but what's happened at AIG is the most outrageous," said Larry Summers, President Obama's chief economic adviser, speaking on ABC's This Week with George Stephanopoulos.
AIG will pay bonuses totaling $165 million. The money comes from taxpayers, funneled through the multibillion dollar bailout plan, but the president's top advisers and congressional leaders say they can't do anything about it.
AIG executives made trillions of dollars of bets that subprime mortgages could never go bad. When they tanked, the government felt compelled to prop up the company with $170 billion in taxpayers' funds. Even with the money, AIG recently posted a loss of nearly $62 billion — the largest corporate loss in history.
Summers, however, can't blame the owners of AIG: After the bailout, taxpayers now control 80 percent of the company. And Summers says those bonuses must be given to the people who ran the company into the ground — because they signed contracts before the company crashed.
"We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by [Treasury] Secretary [Timothy] Geithner," Summers said.
Geithner reportedly had some stern words with the company's chairman this week.
Edward Liddy, who was chosen by the government to run AIG, wrote in a letter Saturday that he, too, thought the bonuses were distasteful, but that his hands were tied.
And, Liddy added, AIG needs to retain the best and brightest talent if it's ever going to pay back the American taxpayers.
Lawmakers on Capitol Hill aren't buying that argument. Republican Sen. Mitch McConnell, also speaking on ABC's This Week, raised the idea that perhaps the bonuses could be rescinded if there were some sort fraud involved.
"Did they enter into these contracts knowing full well that, as a practical matter, the taxpayers of the United States were going to be reimbursing their employees? Particularly employees who got them into this mess in the first place," McConnell said.
Democratic Rep. Barney Frank agreed that the government has to do everything to try to recover the bonuses. Speaking on Fox News Sunday, Frank said if the government can't get the money back, it should at least get the people responsible.
"Who said, and at what point, 'We're going to give those bonuses no matter what'? And I do think it's inappropriate to let those people stay in power at that company."
Should some executives at AIG lose their jobs over the bonuses, at least they'll have a cushion to fall back on. According to The New York Times, the highest bonus guaranteed under the contract is $6.5 million. Seven executives in the very same unit that brought down the company will get more than $3 million each.