The head of AIG said on Wednesday he was trying desperately to prevent the company from collapsing when he allowed the payment of $165 million in bonuses that have stoked widespread public outrage.

Edward Liddy, who took over as chairman and chief executive of American International Group Inc in September when the government stepped in with the first of a series of rescues, said he had asked employees receiving more than $100,000 in bonuses to repay at least half.

Americans are asking quite simply, why pay these people anything at all, Liddy told a House of Representatives subcommittee. Here's why: I am trying desperately to prevent an uncontrolled collapse of that business.

Liddy said some employees had already given back their entire bonuses. Others who had received retention bonuses had since left the company.

AIG has drawn intense fire from the public, politicians and President Barack Obama for accepting up to $180 billion in government aid and then handing out multimillion-dollar bonuses.

Liddy said the payouts were necessary to retain top employees with the specialized knowledge to dispose of $2.7 trillion in complex securities that ended up dragging the company to the brink of collapse last year.

Fury over the bonuses threatens to undermine Obama's efforts to solve the credit crisis and pull the economy out of a deep recession. He has said he might have to ask Congress for money beyond a $700 billion bailout fund approved in October.

People are right to be angry. I'm angry, Obama said on Wednesday.

Many voters view the financial rescues as free handouts to wealthy executives who made bad decisions, and the fat bonuses have fueled that anger.

It is morally reprehensible and fiscally irresponsible to expect bonus money for bringing a corporate giant to its knees, said Democratic Representative Carolyn Maloney.

Another Democrat, Representative Paul Hodes, quipped that AIG stood for arrogance, incompetence and greed.

LIDDY SAYS EMPLOYEES THREATENED

Channeling that populist sentiment, several Democrats and Republicans in Congress sought to force AIG to disclose details about the bonuses, and proposed taxing them so heavily that the recipients could wind up with nothing.

Representative Barney Frank, the Democrat who chairs the House Financial Services Committee, pressed Liddy to release the names of those who received bonuses, and said he intended to subpoena the information.

Liddy refused, citing concerns for the safety of his employees, and read aloud what he said were examples of violent threats that had been received.

Separately, three Republicans asked the Senate Banking Committee to subpoena for documents related to the bonuses.

The House hearing room was filled to capacity, with more than 80 people inside and dozens more waiting outside. The line to get in was already 40 deep more than an hour before the hearing began.

When Liddy entered the hearing room, he stopped briefly to talk with a handful of protesters, dressed in bright pink clothing and carrying signs.

Representative Paul Kanjorski, who chairs the subcommittee, grew increasingly frustrated with the disruption and told the protesters not to try my patience. He shouted Signs down! and later had the signs confiscated.

One of them read, Fire Geithner, referring to Treasury Secretary Timothy Geithner, who has been a key architect of the bailouts.

Obama said he had complete confidence in Geithner, and said he was making all the right moves in fixing the economy.

The situation has put Obama in a tight spot as he tries to strike a balance between sharing the outrage and keeping his focus on the bigger issue of repairing the economy.

An instinct exists among members of our political class to convene show trials to make up for their own shortcomings, said Joseph Brusuelas, a director at Moody's Economy.com in West Chester, Pennsylvania. This is on the verge of damaging the real progress made by the Federal Reserve in addressing the financial crisis.

For the AIG retention bonus contracts, see www.house.gov/apps/list/press/financialsvcs_dem/press031809.shtml (Additional reporting by Kristin Roberts, Karey Wutkowski and Jeremy Pelofsky; Writing by Emily Kaiser; Editing by Andrea Ricci)

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