The Treasury will use a $30 billion infusion into AIG to force the company to repay all of the bonuses promised to employees of its Financial Products group, a White House official said.

My suggestion: PAY THESE BONUSES WITH AIG STOCK.

Meanwhile, a Yale Law School student knows how the to stop the AIG bonuses:

Larry Summers claims that nothing can be done about the AIG bonuses. As a former Secretary of the Treasury, he should know better. Treasury Secretary Tim Geithner should direct the Commissioner of Internal Revenue to challenge the AIG bonuses as unreasonable compensation under the Internal Revenue Code. Finding the AIG bonuses to be unreasonable compensation would render them nondeductible for federal tax purposes, and would strengthen potential shareholder derivative suits to recapture The Great AIG Giveaway. Section 162(a) of the Internal Revenue Code declares: “There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including . . . a reasonable allowance for salaries or other compensation for personal services actually rendered.”

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UPDATE: March 16 20093:59pm

NYT: Obama Orders Treasury Chief to Try to Block A.I.G. Bonuses

President Obama vowed to try to stop the faltering insurance giant American International Group from paying out hundreds of millions of dollars in bonuses to executives, as the administration scrambled to avert a populist backlash against banks and Wall Street that could complicate Mr. Obama’s economic recovery agenda. “In the last six months, A.I.G. has received substantial sums from the U.S. Treasury,” Mr. Obama said. He added that he had asked Treasury Secretary Timothy F. Geithner “to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole.” In strongly-worded remarks delivered in the White House East Room before small business owners, Mr. Obama called A.I.G. “a corporation that finds itself in financial distress due to recklessness and greed.” “Under these circumstances, it’s hard to understand how derivative traders at A.I.G. warranted any bonuses at all, much less $165 million in extra pay,” Mr. Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

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Hat tip: Real Time Economics

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Source:

Larry Summers: Stop the AIG Bonuses. Yes You Can.

Aaron Zelinsky, Articles Editor, Yale Law Journal

HuffPo, March 15, 2009 | 10:16 PM (EST)

http://www.huffingtonpost.com/aaron-zelinsky/larry-summers-stop-the-ai_b_175151.html