With its insistence that $165 million in retention bonuses must be paid, American International Group, while trying to conduct business as usual, is seemingly oblivious to the fact that as the poster child for the corporate bailout generation, every step it takes to reward those who got the company into trouble in the first place undermines public support for its federal rescue and puts its long-term future in grave risk.

I realize that AIG–as well as the federal officials supervising its bailout–are being crushed between a rock and a hard place.

Legally, indications are that AIG must pay up on whatever retention bonuses it owes to members of its Financial Products unit, even though this was the division whose credit default swapping brought the company to its knees and forced Uncle Sam to come to the rescue.