RECKLESS conduct that put large banks and government entities in Hawaii and elsewhere at financial risk has been topped by huge bonuses by the executives who created the crisis at American International Group Inc. By pressure or legislation, those bonuses should be returned to AIG, 80 percent of which is now owned by taxpayers because of the bailout.

New York Attorney General Andrew M. Cuomo wrote in a letter Tuesday to Rep. Barney Frank, chairman of the House Committee on Financial Services, that AIG paid $165 million in bonuses last week, making “;more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout.”;

About two-thirds of the $173 billion bailout was paid out to trading partners such as banks and municipalities. The banks receiving bailout money distributed by AIG to trading partners include Goldman Sachs Group Inc. and Deutsche Bank. Sixteen of the 22 banks and other institutions receiving U.S. taxpayer bailouts are foreign.

AIG also named the 20 states where state, city or county governments were on the receiving end of bailout money to replace investments derived from what they had raised through bond sales. Behind only California and Virginia in bailout amount, Hawaii governments - AIG documents do not specify whether they are the state, counties or both - received $770 million owed under guaranteed investment agreements with a fixed rate of return.

The bailout was intended to prevent bank failures as well as avert financial crises involving municipality bonds. Much of what the trading partners thought was insurance to protect their investments was linked to sub-prime mortgages that went sour and created the current economic crisis. The experience should be a lesson to Hawaii state or county officials to never again invest taxpayer money in an unregulated market.

Meanwhile, the AIG executives should not be rewarded for the mess they created. The company gave “;retention bonuses”; to 418 employees - the most lucrative one totaling $6.4 million, according to Cuomo.

Edward M. Liddy, AIG's chief executive, said the bonuses were provided to employees in its financial services division, where the calamity was created, with the understanding that they “;wind down”; specific functions according to certain time frames. Eleven of the bonus recipients have completed that function and no longer work for the company, he told Frank's committee yesterday.

Liddy said he has asked the 298 employees who received $100,000 or more of taxpayer money “;to return at least half of those payments.”; He said some have offered to give up all of their bonuses, but the paybacks should not be voluntary, even if legislation is needed to carry them out.