This is what Andrew Ross Sorkin of the New York Times advocates (you know he is cool because he uses his middle name).  We should just go ahead and pay the AIG bonuses and count ourselves lucky. 

“So here is a sobering thought: Maybe we have to swallow hard and pay up, partly for our own good. I can hear the howls already, so let me explain.” -  NYT

Bullshit!

Mr. Sorkin provides a couple “great” explanations for paying these bonuses.  These reasons look valid on the surface, but fail miserably when you look closely.

“On that last issue, lawyers, Wall Street types and compensation consultants agree with the president. But from their point of view, the “fundamental value” in question here is the sanctity of contracts.

That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.

As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts. ” - NYT

This is his best argument, but is ultimately a failure.  It’s not a failure because the idea is incorrect.  It’s a failure because the government has already forced auto unions to tear up their contracts.  This hasn’t caused the government to abrogate contracts willy-nilly, nor has it caused any great contract catastrophe amongst businesses, as the “vaunted” compensation consultant advocates.

This isn’t even a real business contract, it’s really just welfare.  It isn’t like the government wants to own AIG.  They had to take a chunk to even have a chance of getting anything back.  If you are getting something for free, which is AIG, you lose some of your rights.

Now for Mr. Sorkin’s second point:

“A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave - the buzz on Wall Street is that some have, and more are ready to - they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.

So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.” - NYT

With rivers of blood flowing on Wall Street, only the very heavy hitters are getting scooped up by firms.  None of these heavy hitters are still at AIG, as they would be long gone knowing the dire situation at AIG.  These guys don’t stick around to watch their company be moved to the minors.

Even if these supposed “brainiacs” never left, why would you want to keep them?  They are the same guys who got you into this mess.  They shouldn’t have a job anyway.  Considering how much of a mess these idiots made, letting them trade against AIG’s book might be a good thing, as it’s almost impossible to imagine them not screwing it up.

The last point about unwinding these investments sounds good, but it’s been 16 months already, and no solution.  There is no magical financial formula or genius Ivy League financial vehicle that will get us out of this mess.  The solution is not brain power.  The only solution is time and none of these idiots at AIG can make it go faster or gives us more.

“The word on the street is that A.I.G. employees are being heavily recruited,” Ms. Meyer says. -  NYT

Of course, this is the word on the street.  AIG is part of the street and fanning these rumors.  What do you think everyone of these guys who got the bonus is telling anyone who will listen?  They are telling them they have tons of offers.

Instead of trying to save these guys’ and gals’ jobs we should be marching them in front of a judge and finding a place for them in Leavanworth.