MCCLATCHY NEWSPAPERS

MCCLATCHY NEWSPAPERS

WASHINGTON — American International Group is set to pay $450 million of bonuses to employees of the unit that was largely responsible for the New York insurer’s near collapse last fall.

The decision to pay bonuses elicited howls of protest in Washington, which has prevented the failure of AIG by providing the insurer with more than $173 billion in aid. The federal government now owns 80 percent of AIG.

Larry Summers, one of President Barack Obama’s top economic advisers, called the payments “outrageous,” and a key House lawmaker, Barney Frank, D.-Mass., told Fox News the government should examine whether the bonuses are “legally recoverable.”

Another Democrat, Rep. Elijah Cummings, D.-Md., renewed his call for AIG Chief Executive Edward Liddy to resign.

Liddy, in a letter to Treasury Secretary Timothy Geithner dated Saturday, said AIG had committed to paying the bonuses to employees of the financial-products unit and that they were “binding obligations” the company cannot legally rescind. The first payments were due Sunday.

The payments to 400 employees of the financial-services unit — some of whom no longer work at the insurer — were promised last year before the federal government bailout. Bonuses range from as little as $1,000 to as much as $6.5 million.

Summers said the government would examine its options, but he acknowledged it might not be able to terminate prior bonus agreements.

“We are a country of law. There are contracts. The government cannot just abrogate contracts,” he said in an interview Sunday on ABC’s “This Week.”

AIG is already scheduled to pay $121.5 million in incentive payments for 2008 to senior executives and 6,400 of its employees. And AIG is laying out another $619 million for 2009 in retention payments to more than 4,000 employees.

Total expected payments amount to almost $1.2 billion.