Fire AIG CEO, recoup bonuses, end banks' bailout - they will survive!

Who is running the U.S.? Is it Treasury Secretary Tim Geithner or American International Group (AIG) CEO Ed Liddy? Geithner knew about the $165 million in AIG bonuses to reward the people who put AIG at death's door and waited to tell President Obama. And Liddy has been blundering through one scandal after another -- from the corporate blowouts at resorts in California and Phoenix to this latest bonus outrage.

But the anger surrounding the AIG bonus situation is a political sideshow. As I told USA Today on Tuesday and posted about here a couple of weeks ago, the real issue is that Hank Paulson used $12.9 billion in taxpayer money to bail himself out -- as a major Goldman Sachs (GS) shareholder -- and installed Ed Liddy, a Goldman board member, to keep secret the fact that Goldman and a slew of European banks got $105 billion in taxpayer money -- 636 times more than the bonuses -- to compensate the banks for their bad bets.

Not only that, but it turns out that those banks' losses, while big, are not so big that the banks could not have afforded to take their lumps. In other words, the argument that the world would end unless AIG got bailed out is beginning to look like the same vacuous argument that got us into Iraq (anyone seen those weapons of mass destruction?). Moreover, the rise in the stock market since the disclosure of the names of those banks who got the $105 billion suggests that the argument that such disclosure would cause a loss of confidence in the financial system is a waste of air.

It's time to fire Liddy, recoup those AIG bonuses and put an end to using taxpayer money to bail out Goldman and the European banks for their bad bets. If an objective analyst can demonstrate conclusively that the financial system is really at risk if we don't bail out AIG, then let's consider the best options to protect the system. But I think we should be skeptical of the Armageddon arguments that the previous administration used to get us here -- particularly now that it's clear how self-serving and deceptive that claim was.

Meanwhile, I am not sure how many more times Geithner can embarrass the president before he hits the road.

Peter Cohan is president ofPeter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns AIG shares and has no financial interest in the other securities mentioned.

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