Whatever else you can say about AIG CEO Edward Libby, he ain't much for irony. In his letter to Secretary Geithner he said that AIG "cannot attract and retain the best and brightest talent ... if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."

As noted yesterday, the bonuses are overwhelmingly weighted toward AIG's Financial Products division (AIGFP), the relatively small division responsible for the company's de facto bankruptcy and no little part of the world financial crisis.

With respect to AIGFP, there's no little snarking to be had about whether these folks are really the "best and the brightest." But it actually goes beyond that. It's not just the people. The whole division is toxic and should be shut down, probably the building should be razed and the ground salted. AIG is a ward of the federal government. Our only financial interest in it is in chopping it up and getting the best prices for the valuable parts of it. I don't think AIGFP is going to have a lot of takers. And as a matter of policy I think we probably want to close it down.

More generally, the idea that there are a lot of jobs on offer at the moment for credit default swap writers strikes me as dubious.

The other argument -- real, as far as it goes -- is that what we're trying to do is untangle a massive ball of twine these guys created. And as much as we might revile these characters we can't do without their help trying to get it unwound. Again, true as far as it goes. The problem, though, is that we're even entertaining the question on the retention/compensation front. The government has more options.

As noted previously, the scale and nature of a lot of the losses at AIGFP go well beyond reckless and folly. A lot of it looks like fraud. And go-go operations like AIGFP don't tend to fare too well in general when subjected to searching legal scrutiny. The government should be making it clear that criminal investigators are reviewing the entire matter. Contracts don't easily withstand credible allegations of illegal behavior. And the executives in question need to have their attention focused on the calculus of levels of cooperation and legal vulnerability rather than compensation packages.