American International Group's executive team shouldn't expect a warm welcome when it goes before Congress on Mar. 18. Americans are up in arms about the $165 million in bonuses paid to AIG (AIG) executives, and Congress has noticed. Rather than an information-gathering session, the executives should be ready to face a grilling worthy of Torquemada. "It's going to be a witch hunt," says Dory Wiley, chief executive of boutique investment banking firm Commerce Street Capital.

American taxpayers own 80% of AIG at a cost of $173 billion in loans and guarantees. But the value of that investment is shrinking by the day. "They're holding a deteriorating asset," says Adam Lerrick, a scholar at the American Enterprise Institute and a former investment banker. "They're losing clients, businesses, and good people, and the assets [soon] won't be worth much." There are important questions that should be asked, but probably won't be, about how taxpayers are going to recoup even a small portion of their investment. The focus should be on resolving the issues at AIG, not on righteous anger and revenge. In the current rage, Lerrick says, elected officials would be wise to start thinking like investors.

To do that, they need to dig below the headlines. Start with the bonuses. It seems inconceivable that anyone working for a company that has cost taxpayers billions should get million-dollar payouts. But there are arguments for the pay. For starters, the skills these managers possess are still in demand. UBS (UBS) and Deutsche Bank (DB), among others, have been raiding U.S. financial firms for brokers and other financial professionals. Nor are there many incentives for employees to stay put. AIG Financial Products employees are being paid to clean up the unit and wind it down. When they complete their task, they will be out of a job. "You don't punish the cleanup crew," says Rob Sloan, head of U.S. financial services at Egon Zehnder International.

Asset Sales a Mess

Congress may wonder why it was important to retain everyone who was rewarded with a bonus for staying on the job. After all, some of these same workers undoubtedly helped get AIG into the financial mess. And according to New York Attorney General Andrew Cuomo, 11 of the 73 AIG employees who received retention bonuses of more than $1 million no longer even work at AIG. They also need to ensure that the incentives are designed correctly to balance performance and retention. Lean too far to the retention side, and employees will be rewarded for keeping the unit going as long as possible, rather than liquidating it for the best value. But if any payments are based on past agreements, rather than the new order, anger would be justified. "That would be troubling," says Sloan. AIG Chief Executive Officer Edward Liddy himself has been critical of the bonuses. "I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them," he wrote in a Mar. 14 letter to Treasury Secretary Timothy Geithner.

If investors really want to get angry, they should take a look at how management of AIG has been handling its asset sales. A big part of AIG's restructuring plan involves selling profitable units to pay back the government. But these asset sales have been a disaster, despite the presence of veteran insurance CEO and dealmaker Paula Reynolds, who was brought into AIG to handle the restructuring. For instance, the sale of AIG's Asian businesses (AIA) was announced in October and financial details were supposed to be available to bidders by the end of that month. Instead, the prospectus wasn't available until February, and it was a scant 65 pages long and contained information only through August 2008. Bidding, unsurprisingly, was light and the unit was taken off the market. "There is no coherent effort internally to sell the assets in an organized M&A process," says Steve Czech, head of hedge fund SJC Capital Partners. Congress needs to ask what went wrong. "The process to gauge market interest in AIA was very thoughtful and deliberate," says AIG spokesman David Monfried. "This is the most difficult market in years and years, and to date nobody has the ability to raise the capital that reflects the worth of this company."

Counterparty Hullabaloo

The asset sales are small change compared to the $100 billion plus paid to AIG's counterparties. This information, released by AIG on Mar. 15, confirmed what many suspected since October—that a large portion of the government's investment in AIG became a backdoor bailout to the world's banks. Goldman Sachs (GS) got $13 billion, SociÉtÉ GÉnÉrale (SOGN.PA) received $12 billion, and $12 billion went to Deutsche Bank, nearly 100% of what they were owed. That strikes some financial professionals as egregious. If AIG had filed for Chapter 11 bankruptcy in September, those same firms would have gotten in line with other creditors and received pennies on the dollar. There's no reason AIG couldn't have negotiated better terms, says Lerrick. "Everyone should have [been] marked down 20%."

Most important, Congress needs to know how Liddy and his team plan to get taxpayers out of this mess. Some experts argue that AIG should have filed for Chapter 11 in September, and that bankruptcy remains the best option. "Dissolution would be painful," says Martin Weiss, chairman of the Weiss Group, a research group. "But it would not take a Herculean effort to rearrange things and shift responsibility to a receiver." AIG, however, continues to operate under its original plan to raise cash by selling off successful businesses, liquidate AIG Financial Products, and pay the government back. Legislators will likely demand specifics on how that's going to happen and when.

And if Liddy can't do that, some in Congress may begin to demand someone who can.

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