Link: http://www.nytimes.com/2009/03/16/us/politics/16assess.html?_r=1&ref=todayspaper

I can understand the prevailing sentiment that executives at AIG should be stripped of their bonuses since the corporation took public bailout funds through TARP. I think such anger is misguided. AIG has many divisions, some of them quite profitable, and it is foolish to limit the pay of good performers; they may leave the company in search of better pay (and a better name) elsewhere. You’ll end up with a company with LCD managers who will run the business even further into the ground.

Generally, the corporation should know best how to attract and maintain good executives while keeping their compensation costs down. However, with government bailout money on the table, many of these natural incentives go out the window as people scramble for parachutes. This is not the fault of “greedy” people at AIG. It is the fault of federal government policy to infuse bailout capital into a private company. Now that the taxpayers’ money is at stake, the taxpayer advocates (do we have any?) on Capitol Hill have an obligation to make sure that the company is run well–that these bonuses are worthwhile costs necessary to retain good human capital. Unfortunately, given that policymakers and bureaucrats are driven by political considerations rather than by taxpayer interests in AIG profits means that such management will cater to the populism described in this article.

The moral of the story: don’t put taxpayer money on the line in the first place.