Ed Liddy sized up this situation when he got to AIG and came to the conclusion that the best course for taxpayers and for the financial system was to pay the bonuses. This gets back to something I wrote earlier: If Obama disagrees with Liddy's decision, he should either A) fire Liddy, or B) fire the guy who hired Liddy (Tim Geithner). What he should not do is go along with this Kabuki outrage, in which official Washington pretends it had no idea that big financial institutions — especially failing ones — might need to keep paying their top employees competitive salaries.
Of course, it would be nice if the Obama administration figured out a better way to wind down AIG, but unfortunately, as Rich pointed out the other day, Obama decided that it was far more important to do Great Society II than to formulate a set of clear rules for the orderly liquidation of insolvent non-bank financial institutions. I'm all for figuring out how to get the government out of AIG, but I don't think shaking our fists over these bonuses is getting us closer to a solution.
Whatever happens will have to wait until the President attends to more pressing matters, like appearing on the Tonight Show. No word on whether or not he'll be bringing any members of his Cabinet along to participate in a Very Special Episode of the "Jaywalk All Stars."