AIGFP and its key employees are under investigation by Andrew Cuomo, as well as by the SEC and the U.K.'s Serious Fraud Office.  Given the cloud hanging over the legality of many of AIGFP's transactions and procedures, I see no reason for the Treasury to quail at the thought of incurring possible lawsuits from disgruntled employees for withholding contractual bonuses.  Nor, in an out-for-blood, hell-freezes-over climate in which Robert Reich and William Kristol actually agree about something - show AIG who's boss -  is it likely any counterparty is going to try and take advantage of some esoteric legality to bring down the financial system by immediately demanding full coverage of their positions. 

It's time Uncle Sam, as the ultimate guarantor for the world economy, just stood his ground and said "no" and began laying down the law for fair and equitable settlements in time of dire economic emergencies.  This isn't about the sanctity of contracts.  This is about the ability of government to effectively support the good of all versus the debilitating greed of a few. 

We need the Treasury to speak up, loudly and clearly, with the financial equivalent of "millions for defense, but not one cent for tribute".   Taxpayers and investors would champion such a move.

AIGFP needs to be separated from its healthy parent and put into temporary government receivership.  The key employees required to unwind complex derivative positions and to maintain active hedging could be kept in place as employees of the U.S. Government. Their continued cooperation could be taken into account and offset against any legal issues they might face.

That's a bonus I could live with.