Bonuses at AIG As Easy As 1, 2, 3

It may only be a small share of the $170 billion in total government assistance to the company, but the latest move by AIG to honor commitments to 400 employees with $165 million in bonuses has Treasury fuming. The New York Times summarizes the situation well: "The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government's efforts to prop up Wall Street"; "the bonuses range from as little as $1,000 to as much as $6.5 million." What's worse, it all goes to employees of AIG's disgraced Financial Products subsidiary, which led the company into the credit-default swap iceberg. Apparently, there was no choice, the federal government was advised, as the payments were committed before the meltdown. The Washington Post says "the company agreed to revise some executive payments after what AIG's leader, Edward M. Liddy, called a 'difficult' conversation" with Treasury Secretary Timothy Geithner.

In other coverage, the Wall Street Journal has more quotes from the Liddy letter to Geithner, including a statement that said, "Honoring contractual commitments is at the heart of what we do in the insurance business." In her Sunday column, the Times' Gretchen Morgenson gives a good summary of why politicians and a large AIG shareholder are so annoyed with the Federal Reserve's trustees who are supposed to be overseeing the company: Not only are they letting people at the other end of rotten AIG contracts get 100 percent of what they think they are owed, but they may be blocking a key compensation reform effort. And Reuters reports that CEO Edward Liddy will likely testify before the House of Representatives' capital markets subcommittee on Wednesday, and that the firm may disclose who those counterparties to its credit default swaps are—counterparties that the Federal Reserve has refused to identify.

In international finance news, don't read too much into the headlines from yesterday's G-20 summit of finance ministers in London. Sure, the ministers may be "pleased with the spirit of cooperation," but the Financial Times concludes tartly that "the meeting ended without specific new commitments and no country or central bank would be forced to change any existing policy in light of the communiqué." No deal was reached on increasing resources available to the International Monetary Fund so that it can bail out the hardest-hit countries. And the group was divided on an American proposal for a concerted increase in stimulus spending, as reported by the Wall Street Journal and the New York Times. However, the group did enlarge the membership of the Financial Stability Forum and rejected the standing policy of the World Bank president being from the United States, and the IMF head being from Europe, with the communiqué noting that "the heads of the international financial institutions should be appointed through open, merit based selection processes." The FT also reports on President Obama's continuing reassurance about the viability of U.S. debt, saying after a meeting with Brazilian President Lula da Silva that "not just the Chinese government but every investor can have absolute confidence in the soundness of investments in the United States."

Meanwhile, farther from the summit canapés, the Washington Post reports on the collapse of the Polish zloty currency after years of speculating on cheap Swiss francs. Many Poles now can't pay off their franc-denominated mortgages, whose monthly payments are now 50 percent more expensive since last summer. The Polish economy has been resilient in the world recession and might even grow in 2009, but this crisis has led to a lot of suffering; even Sky Tower, a planned 846-foot-tall Warsaw skyscraper, has had to be shrunk by 20 percent.

A number of new pieces today tackle domestic policy questions. The New York Times reports, "The Obama administration is signaling to Congress that the president could support taxing some employee health benefits." Obama's current budget proposal, to limit income tax deductions by the wealthiest, raises $318 billion over 10 years. But there's a bigger pot of money from which to subsidize health care expansion—$246 billion in revenue in one year, if health benefits were fully taxed. It may be an uphill battle though: House liberal Democrat Pete Stark says simply "it's a dumb idea." Harvard professor N. Gregory Mankiw writes about Obama's budget proposals in the Times and finds Obama to be an economic optimist, serious about climate change but a deficit dove and an advocate of future government spending even after the current crisis passes. And stay tuned for details, yet again, about efforts to clean up the banking system: Geithner told Bloomberg that they would be forthcoming, apparently in the next week.

What's the best time to get into the market, and what should you buy once you get there? The Washington Post talks to three investment gurus, including Fidelity's Peter Lynch, for their advice to those lucky enough to be able to make any play whatsoever. PIMCO's Bill Gross has jettisoned the usual 60-40 stock-to-bond ratio that many recommend, but Burton Malkiel, author of A Random Walk Down Wall Street, says, "If you've got a 10- or 20-year horizon, this is probably a very good time to invest in stocks." Lynch recommends "knowing 10 public companies cold. Know their financial positions, know what they do." The New York Times parses recent economic indicators and the words of still other gurus (Warren Buffett, Nouriel Roubini, blogger Barry Ritholtz, other economists) to get an answer to the question "Has the Economy Hit Bottom Yet?" (The not-so-helpful answer: We'll know after we've come out on the other side.)