AIG's financial products group wrote Credit Default Swaps, or insured billions of AAA-rated tranches in structured debt products, many of which where backed by subprime mortgages. As an institution, it has to take its share of the blame for its own demise as it overeached and insured too many, high risk assets.
Two things - 1) Many CDOs are highly leveraged and the AAA-tranche can often be as much as 70% of the capital structure. So there is not really a lot of subordinated debt and equity to provide cushion to the AAA debt, and 2) CDOs are structured so that as certain collateral quality and coverage tests fail, at the lower-rated tranches, then interest income and principal must be set aside to pay down the AAA tranches at par. By insuring the highest class, financial guarantors like AIG, MBIA, Ambac..etc are really betting on the entire risk spectrum, not just the AAAs and should have realized that. I'm also pretty sure AIG made some big bets on sub-prime mortgages after 2005....
It's not like AIG was trying to make a quick buck before the whole thing exploded. But it was their duty to better understand the risks, and limit their exposure appropriately and they got it wrong. There is a long line of people and institutions who have to share the responsibility, and that is not coming across the airwaves right now. Its popular and easy to blame 'Wall Street' and do it goes. But everyone from mortgage providers. to consumers, financial institutions, to investors, to financial guarantors, to the rating agencies, to the gov't are complicit in this ONE aspect of the recession we're in.
Most employees at that particular AIG unit weren't greedy, or trying to fleece people. Most probably did a good job given their mandates. But higher up, some poor decisions were made, and lower down, not enough questions were asked. Even good, smart people require oversight...and even then, some things you just don't see coming and you have to learn the hard way. I know for a fact that many CDO managers didn't even fully understand the mechanics of their own products as Indentures just got recycled and tweaked and they were shocked when they had to make large paydowns to their AAAs. They were ignorant and are to blame for that. I suspect that at some level, AIG, MBIA, AMBAC, FSA..the whole lot were the same. They didn't understand what they were getting into. If they had known how easy it was to trigger a AAA repayment, there was no way they'd have taken on so much risk. There is no magic to it...many people looked the other way, or didn't look hard enough. I believe a strong component of the downfall was that too many people deferred responsibility of modelling and calculating the risks to the rating agencies and took their ratings as law. If A&P says its rated AAA I guess it is..but dep down everyone knew the bonds did not have the same credit worthiness of the US govt. But many looked the other way.
Should AIG pay bonuses? They may have to if they want to retain some of the best employees and people who actaully know the business enough to manage existing trades and turn things around. It would prob. cost more to fill those executive spots with 'newbies'...I know I'd demand a lot of compensation to step into that mess. Not to mention, innocent employees are getting death threats every day at work.....But its a political thing now and even so, you'd have to ask..how much is too much?
As for ManU...they'll do as the contract says, or come up with a mutually beneficial way to part with AIG (as it seems was already done). But I don't think the AIG name taints them in any way. If people don't mind wearing a shirt that has the names of players who have been accused of rape, running down prostitutes, fighting in bars, making racist comments etc...don't see how AIG is such a big deal. Then again....