It is often said the the President of the United States is the de facto leader of the world. If that's true, then world leadership has its limits. I am not going to list all the limits of the U.S. President's power here -- just President Barack Obama's inability to halt the use of taxpayer money to pay $200 million more in bonuses to American International Group (AIG). So far, taxpayers have invested $182.5 billion for a 77.9 percent stake in the company. Though it is clearly winning this face-off, AIG may be fronting for the even more powerful Goldman Sachs Group (GS). Will Obama draw a line in the sand or let AIG defeat him?

As a reminder, on March 16, Obama asked Treasury Secretary Geithner to "block these bonuses and make the American taxpayers whole." At the time, Obama also said, "This isn't just a matter of dollars and cents. It's about our fundamental values." The result was 15 of the 20 AIG employees in its Financial Products Division -- the one that created a huge book of Credit Default Swaps (CDSs) that nearly brought the global financial system to its knees -- paid back their portion of the $165 million in bonuses they were rewarded for their effort.

Contracts released last Friday night by Treasury reveal that in May 2010 AIG will pay about $200 million in retention bonuses. The contracts Treasury negotiated do nothing to stop the $200 million in payments -- they lack terms that would force AIG to sue to recollect the bonuses and for the government to be able to direct that litigation. They do nothing to prohibit future contracts with the financial products subsidiary and have no language about future retention payments.

How does Goldman fit into this picture? Remember, it received $12.9 billion in payments from AIG. Our 43rd Treasury Secretary, Hank Paulson, was Goldman's CEO and he decided that the U.S. needed to bail out AIG while appointing Goldman board member, Ed Liddy, to take over AIG.

But it looks like Liddy was put in place to protect Paulson's $500 million investment in Goldman stock. Since then, Liddy has presided over one outrage after another -- all of which had to to with continuing to entertain AIG executives at plush resorts and pay them enormous bonuses as if AIG was a profitable company.

But AIG is not profitable -- it lost $99 billion in 2008. And the U.S. owns 77.9 percent of its stock. So why is AIG getting to use our taxpayer money to pay even higher bonuses to AIG executives next year than it did this year? And why is AIG so comfortable snubbing its nose at the most powerful person in the world?

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns AIG shares and has no financial interest in the other securities mentioned.


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