A tidal wave of public outrage over bonus payments swamped American International Group (AIG) on Monday. Hired guards stood watch outside the Connecticut offices of AIG Financial Products, the division whose exotic derivatives brought the insurance giant to the brink of collapse last year. Inside, death threats and angry letters flooded e-mail inboxes. Irate callers lit up the phone lines. Senior managers submitted their resignations. Some employees didn’t show up at all.

Politicians and the public spent Monday demanding that AIG rescind payouts that they said rewarded recklessness and greed at a company being bailed out with $170 billion in taxpayer funds. But company officials contend that the uproar is scaring away employees who understand AIG Financial Products’ trades and are trying to dismantle the division before it further endangers the world’s economy. “It’s going to blow up,” said a Financial Products manager.

President Obama on Monday vowed to “pursue every legal avenue to block these bonuses.” But that pledge may have come too late. About $165 million in retention payments started to go out Friday to employees at Financial Products, after numerous discussions with the Treasury Department and the Federal Reserve. Attorneys working for the Fed had determined that the retention payments couldn’t be touched because AIG would face lawsuits and be subject to penalties from states and foreign governments. Pressure on the Financial Products unit, grew even more intense yesterday when New York Attorney General Andrew M Cuomo threatened to issue subpoenas if the company failed to provide details about recipients of the retention payments.

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