PRESIDENT BARACK Obama’s top advisers and Democratic and Republican congressional leaders voiced outrage yesterday that insurer American International Group (AIG), a recipient of a $173 billion taxpayer bailout, is paying $165 million in employee bonuses.

But they agreed it was unclear what, if anything, the government can do to recover the bonus money or cut the bonuses since the contracts seem legally binding.

Lawmakers said, however, that plenty of questions need to be answered and some AIG officials may need to be ousted. They said legislation may be needed to avoid a repeat of such action and retain confidence in federal bailouts.

AIG agreed on Saturday to revamp its system for paying bonuses after the Obama administration objected to plans for hundreds of millions of dollars in such payouts.

But it said it had no choice but to pay out the $165 million due yesterday.

AIG will sharply cut remaining 2009 salaries for top executives of its AIG Financial Products unit and realign 2008 bonuses to tie them to restructuring and repayment targets, AIG chairman Edward Liddy wrote in a letter to treasury secretary Tim Geithner.

AIG had promised to pay about $1 billion in retention bonuses over a period of several years, half of which has already been paid.

Mr Liddy, in his letter to Geithner, said the firm was legally obligated to make already-committed 2008 employee-retention payments, the value of which were set last year before problems at its Financial Products unit became public. AIG Financial Products was the unit that made bad bets on toxic mortgages and credit default swap contracts that led to the company’s near collapse. – (Reuters)