AIG planned to pay out about $100 million in bonuses Wednesday to many of its employees who worked in a division of the firm that was largely responsible for the insurance giant's spectacular meltdown.

When the company paid out similar bonuses last year, it led to populist outrage because AIG was the recipient of a $182 billion bailout from the federal government - the largest to date - while average Americans were struggling to find work and save their homes.

Treasury Secretary Timothy Geithner said Wednesday that the contracts stipulating the payment of the bonuses are "outrageous" and "never should have been permitted," though he noted that they had been signed two years ago before the government bailed out the company and thus could not have given any input on the matter.

Testifying before the House Ways and Means Committee today, Geithner instead drew attention to the administration's proposal to make the largest financial institutions pay a fee as a way to recoup money poured into the financial sector by the Troubled Asset Relief Program (TARP).

"If you join with us in passing this proposed fee on our largest financial institutions, you'll be able to say ... that the American taxpayer will not pay a penny" for AIG's role in the financial crisis," Geithner said.

The retention bonuses are $20 million less than what AIG would have paid under the original contracts. Current employees were asked to give up 10 percent of the bonuses, while former employees were asked to forgo 20 percent. In return, they would be paid one month earlier, now instead of in March.

According to unnamed sources quoted in a Washington Post article, Kenneth Feinberg, compensation czar for the Treasury, said that he would not sign off on any 2010 compensation packages until the bonus money was returned.

He was "adamant those pledges be honored," said one quoted source familiar with the AIG discussions. "It's non-negotiable."

The New York Times reported that in a response to Sen. Chuck Grassley's (R-Iowa) inquiry regarding bonuses, Feinberg said that the contracted bonuses were "grandfathered payments" and not covered by the new rules on cutting down executive bonuses at companies receiving bailout money. However, he added that he and his staff have insisted that employees' overall compensation be reduced in return.

A statement from AIG said that 97 percent of current employees in the Financial Products division receiving the bonuses volunteered to participate in the reductions. According to two individuals involved in the discussions in a Washington Post article, only 35 percent of former employees have agreed to this so far, however.

Financial Products is the AIG division that traded in derivatives, which led to crisis for the company in 2008. The bonuses were to be given to the division's employees in an effort to retain them to close down the division, a decision AIG made after the bailout.

Since then, the division has reduced the number of derivatives trades from 44,000 before the bailout to 16,100, and cut down the notional value of remaining trades from $2 trillion to $940 billion. Additionally, the number of Financial Products employees went down from 428 to 237.

In an email, AIG spokesman Mark Herr said that the employees accomplished the above tasks and "did what they were retained to do: unwind [Financial Products]."

Rep. Darrell Issa (R-California), a ranking member on the House Government and Oversight Reform Committee, who has been a longstanding critic of the federal bailouts, said in a statement, "It's not a question of whether or not the bonuses are justified, but rather if the administration is being transparent with the American people about the nature and need of these bonus payments since the president expressed outrage over this very issue a year ago."

"Either the payments are justified and the administration has an obligation to explain that to the American people or they are not and they should come forward and say so," he said.

After the outrage that ensued when AIG first paid a round of $165 bonuses after receiving federal bailout money, the company quickly said it would return about $45 million by the end of the year. However, only $19 had been refunded. This figure has increased to about $39 million as of now, according to Feinberg in an interview today.

Several former employees have volunteered an additional $4.5 million in returns, but AIG said in its statement that it is "not able to accept them at this time." It is unclear whether those funds could go towards the $45 million being repaid to the government.

In its statement, AIG said that it believed the $20 million reduction that had been negotiated "allows us to largely put this matter behind us."

Critics such as Senator Grassley did not think this was enough. "AIG has taxpayers over a barrel," the ranking member of the Committee on Finance said in a statement Tuesday. "The Obama administration has been outmaneuvered. And the closed-door negotiations just add to the skepticism that the taxpayers will ever get the upper hand."

Feinberg called the payments "outrageous," but in an interview Wednesday on "Good Morning America" said that the government isn't being "outmaneuvered." In fact, he emphasized that it is maximizing available leverage to maneuver AIG into paying everything back.

"I do not for a minute ignore the outrage out there, which I share. But the fact of the matter is, we've got to abide by the law," Feinberg said.

A few individuals who haven't agreed to the reductions are holding out for the full bonuses, believing that they have a good case under law as AIG's own lawyers have issued an opinion saying the contracts are legally binding. For AIG, breaking the contracts could mean having to pay more money in the future as a penalty.

After the last of the retention bonus payments in March, Feinberg said, "These old guaranteed bonuses will be a thing of the past."

This work by Truthout is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.