Of all the outrages to the American taxpayer in the last year, there is not one that can top the bailout of American International Group (AIG). After former Treasury Secretary Hank Paulson decided to let Lehman Brothers collapse 13 months ago in history's biggest bankruptcy ($639 billion), AIG -- with $1 trillion in assets -- was on the verge of toppling, too. Paulson saved it and we're all still paying.

How so? The threat of a downgrade of its debt repayment ability forced it to put up $14.5 billion in collateral against its Credit Default Swaps (CDSs) -- $14.5 billion that it didn't have. Rather than let AIG follow Lehman, Paulson decided to give it $85 billion for a 79.9 percent stake in the company -- a figure that eventually ballooned to $182 billion in U.S. taxpayer money.

AIG executives reacted with appropriate humility. They celebrated their good fortune with big executive parties at resorts in California -- their post-bailout stay at the St. Regis resort in Monarch Beach, CA cost $440,000 in taxpayer money -- and Phoenix. And to top it off, they reached into the taxpayers' pockets and gave the very executives who took on that CDS risk $165 million in bonuses.

But now that U.S. Special Master for Compensation Kenneth Feinberg (pictured) -- a.k.a, the Comp Cop -- is on the job, that's all in the distant and soon-to-be-forgotten past, right? No. Feinberg has already granted CEO Robert Benmosche a $10.5 million compensation package -- well above the $200,000 that the heads of other big TARP recipients will get.

And three of the executives who got those 2008 bonuses will get to keep their money -- to the tune of $4 million, $5 million and $7 million each, according to Fortune. Interestingly, the names of these executives are being kept secret. And one likely reason for the secrecy is that Feinberg fears for the safety of their families.

Is that all? No. As I posted, AIG plans to pay even bigger bonuses to those CDS-mongers in May 2010: $200 million, or 21 percent more than last year. Feinberg's response to these bonuses is fair enough: They were written into a contract and therefore AIG has to pay them -- end of story.

This raises a small question: Didn't the executives at the other seven TARP-heavy companies who are getting their pay cut by 90 percent have contracts as well? I would be very surprised if they did not, since there is probably not a public company top executive in the country who does not have an employment contract.

So why isn't Feinberg using the same logic about the inviolability of contracts for the other TARP recipients? What is so special about AIG that it can be allowed to spend $200 million of our money to reward its executives for the kind of mismanagement of risk that cost American taxpayers $182 billion?

Only the Comp Cop knows for sure.

Peter Cohan is a management consultant, Babson professor and author of eight books, including You Can't Order Change. Follow him on Twitter. He owns AIG shares.


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