Could We PLEASE Get this Straight Re- AIG:

IT'S NOT THE BONUSES.

Ok, the bonuses are bad; but they're the LEAST of the problems with what's going on.

AIG is insolvent; it lacks assets or income sufficient to pay off its obligations to its existing creditors.

When you or I get into this situation, if we fail to file bankruptcy, our creditors can force us into it, to provide for an orderly liquidation of our assets and debts. We have to fully disclose all of both. Our assets are sold on terms reasonable under current conditions, and the proceeds are divided fairly among our creditors -- i.e., none of the unsecured creditors get 100% on the dollar owed them, but they all get the same percent -- there's no favoritism.

AND, if you or I get into this situation, NO new creditors come along to give us yet more money. New creditors are on notice that we're insolvent and, guess what, they don't lend us any more money! Our existing creditors can give us more or less time to try to work things out; but ultimately, THEY bear the brunt of their original and/or subsequently mistaken judgments -- not new creditors.

This is what should happen to AIG.

Instead, AIG is NOT in bankruptcy, because its existing creditors would like us taxpayers to step in as new creditors and throw enough new, bailout money into AIG so the existing creditors won't actually have to suffer any losses -- WE will be the losers, instead of them.

So, that's where our tax money's going: to save AIG's existing creditors from the consequences of their mistakes in acquiring debt obligations of AIG. THAT is what is happening right now.

The bonuses are TRIVIAL compared to the amounts being paid to AIG's existing creditors.

AIG is just a conduit. The real robbers are its creditors, Goldman Sachs -- surprise! -- being one of the biggest.

As usual, Elliott Spitzer's nailing it:

The Real AIG Scandal
It's not the bonuses. It's that AIG's counterparties are getting paid back in full.
By Eliot Spitzer Posted Tuesday, March 17, 2009, at 10:41 AM ET

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG's counterparties are justified with an appeal to the sanctity of contract. If AIG's contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.

But wait a moment, aren't we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won't be laid off. Why can't Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?

More at Slate.com; see also Newsday.

The bonuses are just a diversion.