According to the white paper, out of 25 AIG-FP risk businesses or books,"5 books are almost completely wound down".  However, the WaPo article quotes Gerry Pasciucco, the firm's chief operating officer, as stating that "nearly all the troublesome sectors of the business -- namely, the risky credit derivatives written on mortgage-backed securities -- are now out of the equation, as are the people who worked on them. That leaves a small number of employees to untangle the remaining trades in four main areas: commodities, interest rates, currency and equities -- most of which were fully hedged and have caused little problem."  He goes on to say that the people receiving retention bonuses "are replaceable. If we were running a long-term business, we could probably replace them over time, not all at the same time."

To some degree, the very lack of transparency in the AIG bailout seems to have led to a major misunderstanding inside AIG about the nature of AIG-FP's remaining business and the status, responsibilities and culpability of its remaining employees.

If what Pasciucco says is true, then, on the one hand, the current employees don't deserve the wrath of taxpayers for taking unconscionable amount of money after having wrecked the world financial system - they're not the economy-wreckers, but the clean-up crew.  On the other hand, the amount of money they are receiving regardless of performance seems outsized if they are indeed "replaceable", and are simply winding down positions created by others.

The article makes a good point: if all the people in place at AIG-FP actively hedging all those commodity, interest rate, currency and equity positions leave, it will create "the biggest naked position on Wall Street" for "everybody" to "exploit".  The AIG-FP employees would also likely end up at AIG-FP's counterparties with exploitable inside knowledge of those positions.  So driving everyone currently at AIG-FP out the door through misplaced bonus fury would indeed be counterproductive.

Still, the notion that AIG executives have been shopping, that  somehow entire credit markets would seize up if  key AIG-FP employees weren't retained via generous compensation (because only they understood the complex basket of bespoke mortgage-based structured investment vehicles they created) seems to be utter hooey.  Their failure to make clear what is currently going on at AIG-FP has helped misdirect outrage and anger toward employees who, while by most standards are excessively compensated, have jack squat to do with Joseph Cassano's criminal conspiracy to profit from his division's reckless trades.