First, I don't think that's what the charge was.  I think that the charge was that there were some (like Cramer) who know how the market is manipulated, and that the media is at best an unwitting and at worst a willing accomplice.  The problem is not that these reporters didn't know about any of the problems with these businesses; it's that they didn't ask.  For the most part, they served as CEO stenographers--even those (like Cramer) who clearly knew better.  As with Iraq, there were plenty of dissenting voices (see Baker, Dean), but the press never let anyone hear from them.  (Can't imagine why Cohen would be sensitive to that charge--only "a fool or a Frenchman would think otherwise").

Second, a point that Cohen missed is that it was in the big shots' interests to believe.  Short term profits go up--more money for the executives.  That gets paid by the shareholders.  Once Weill  et al. put their millions in the bank and it doesn't matter if they were right or wrong over the long term.  

This guy simply does not realize what a clown he is.  So long as he and others like him dominate the "ideas" of the Washington Post, it is doomed to failure.  

Thus, I have to believe that even putting aside the fact that the government owns the company, there has to be a way to fire these people without triggering defaults--one at a time.  (Seriously, the sector has shrunk so much, where do they think they're going to go?  Lehman's not hiring, I've heard.).  Unless these folks were going to move collectively to put the bank into default, which raises a whole bunch of other problems as they're not "employees" for labor relations purposes.  

In my own mind, AIG has miscalculated enormously. Before this, I think there was a chance that they and others would get out of this mess without criminal indictments, or even broad new government regulation.  Now--in an environment where autoworkers were laid off and their contracts broken--these executives demand their payments because--why, exactly?  These executives, ironically enough, were in no danger of losing their jobs before this last piece of idiocy.

Congress could, for example, easily write a specific bankruptcy provision to address this situation (with one caveat: it must be addressed at all financial institutions or the S Ct will strike it down).  The procedures could be structured in such a way that the parties to the insurance obligations are made whole (if that is in fact desireable, which is a pretty dubious proposition).    And once the government starts coming after you, they rarely stop (even when they should).  It also remains to be seen what the feds may do with their ownership interest.

If anyone has a link to the letter from counsel on which AIG apparently relied for their position, I'd love to see it.  I think, however, that they've probably got that piece of paper under lock and key.

Update:

Ok, this helps a lot.  Except it doesn't.

If this is right, then emptywheel is wrong and the deals hinge on the bonuses, not the employees.  But this makes no sense at all.  Again, suppose the employee leaves?  Who gets the money then?  This schmuck basically has a guaranteed payment of X dollars that follows him around his entire life?  Citing the agreement isn't enough.  Anybody got a link to what it actually says?