The reason for this is haste rather than malice: The AIG bailout was a rapid effort to avert economic collapse. It was meant to address insolvency, not labor costs.
I think that's true, but here's another question: Even if the government had all the time in the world, how on earth would it have negotiated labor costs with AIG? (Assuming that the contracts had already in place, as I believe they were when the first AIG bailout was announced.) AIG's financial products unit isn't unionized, so who would have done the collective bargaining?
I was talking about this issue earlier today with Matt Yglesias, and we agreed (at least I think we agreed) that there there would have been a collective action problem: It might be perfectly rational for AIG as a whole to adjust its compensation downward in exchange for bailout funds or the avoidance of public ire or whatever. But it would not be rational for each individual employee of AIG do reopen his or her contract. So how would the compensation adjustments have worked?
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