AIG are in any meaningful sense, insovent. The firm survives only because of government support. The government owns nearly 80% of the firm. Yet execs are enjoying further bonuses, essentially direct from taxpayers money.
Robert Reich puts it very clearly:
...illustrates better than anything to date why the government should take over any institution that's "too big to fail" and which has cost taxpayers dearly. Such institutions are no longer within the capitalist system because they are no longer accountable to the market. To whom should they be accountable? As long as taxpayers effectively own a large portion of them, they should be accountable to the government.
But if our very own Secretary of the Treasury doesn't even learn of the bonuses until months after AIG has decided to pay them, and cannot make stick his decision that they should not be paid, AIG is not even accountable to the government. That means AIG's executives -- using $170 billion of our money, so far -- are accountable to no one.
The execs in question hide behind the letter of the law. But the natural, legal course of events (i.e. bankruptcy) was set aside when AIG received its first huge injection from the Federal government - in that sense, the spirit of the law was violated some months ago.