For AIG bonuses blame the Connecticut law

I had pointed earlier:

House Committee on Financial Services has started a two part hearing. In first part AIG CEO talks and in second Bernanke and Geithner would present their views (25 March 2009). The first part hearings are available on the website

The second part of hearing is here and is being discussed widely in blogs and media.

Geithner says:

On March 10^th, I received a full briefing on the details of AIGFP’s pending retention payments, including information on the payments to individual executives.

I found these payments deeply troubling.  After consulting with colleagues at the Fed and exploring our legal options, I called Ed Liddy and asked him to renegotiate these payments.  He explained that the contracts for the retention payments were legally binding and pointed out the risk that, by breaching the contracts, some employees might have a claim under Connecticut law to double payment of the contracted amounts.

Bernanke says:

I asked that the AIG-FP payments be stopped but was informed that they were mandated by contracts agreed to before the government’s intervention. I then asked that suit be filed to prevent the payments. Legal staff counseled against this action, on the grounds that Connecticut law provides for substantial punitive damages if the suit would fail; legal action could thus have the perverse effect of doubling or tripling the financial benefits to the AIG-FP employees.

It seems lots of work has gone in structuring compensation schemes, ensuring the flow continues whatever happens