More on AIG, with Larry Summers

After some enjoyable arguments in the comments section, I have been trying to bone up on AIG's bonus situation. First, I clicked over to an ABC story entitled "Summers: AIG Bonus Bombshell 'Outrageous,'" expecting to find a story in which -- well, in which Larry Summers denounces the AIG bonuses as an outrage. Instead, I find Summers saying:

What that company did, the way it was not regulated, the way no one was watching, what's proved necessary, it is outrageous.

That's not quite the same thing, is it? Summers goes on:

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 Secretary Geithner and by the Federal Reserve system.

I think that's exactly right. It's not worth breaking the rule of law over the heads of some AIG executives, much as we might want to break something over the heads of AIG executives.

Second, it's worth going back to the primary sources on this issue. I thought AIG CEO Edward Liddy's letter (pdf) to Geithner was a pretty good read. It's not going to make you want to buy the man a Christmas present, but it has some interesting details and reminders. Here are a couple:

I do not participate in any AIG bonus or retention program, have never attended a single AIG sales event or conference and, before September, did not have any relationship with AIG.

[...]

Due to losses at AIG Financial Products, a senior manager will receive about 43% of his 2007 expected level for 2008.

[...]

I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them.

[...]

We believe that there will be considerably greater flexibility to reduce contractual payments in respect of 2009, and AIG intends to use its best efforts to do so.

Read the whole thing. Liddy also mentions an attached white paper, which I am trying to track down.

Update: Here (pdf) is the white paper on AIG's retention plan.