NEW YORK (Bloomberg) — American International Group Inc., the insurer bailed out by the US government four times since September, shouldn't have paid bonuses to the Financial Products unit, former chief executive officer Maurice (Hank) Greenberg said.

AIG's disclosure of $165 million payments to employees of the unit that nearly bankrupted the company has drawn a backlash from the public and the threat of punitive taxes from lawmakers.

Retention bonuses AIG awarded in 2009 totaled $218 million, according to documentation obtained by the office of Connecticut Attorney General Richard Blumenthal.

"There's no reason to pay them bonuses," Greenberg, 83, who led the company for 38 years before his forced retirement in 2005, said during a luncheon in Hong Kong today. "Compensation did get out of hand in financial services."

The government's AIG rescue bill swelled to $182.5 billion from an initial $85 billion in September. The bonuses were paid less than two weeks after AIG reported a $61.7 billion loss for the fourth quarter, the largest in US corporate history.

The payments to employees of the Financial Products division, whose credit-default swap losses brought the firm to the verge of collapse, prompted the House to approve a measure on March 19 to slap a 90 percent tax on bonuses at companies receiving more than $5 billion of federal aid.

Greenberg said the tax bill wasn't justified.

"I don't want the government to decide what compensation ought to be," he added.

AIG chief executive officer Edward Liddy, who admitted some of his company's compensation payments were "distasteful", has asked employees paid bonuses in excess of $100,000 to repay half.

Fifteen of the top 20 bonus recipients at the AIG unit had agreed to return their bonus checks, worth a combined $30 million, Cuomo said March 24. As much as $80 million of the payments may be recouped, taking into account other employees who've agreed to return the money.

Greenberg disputed the claim that he was responsible for losses at AIG's Financial Products, which was created under his watch.

The unit "went on a spree" writing credit-default swaps in huge volumes after AIG lost its triple-A credit ratings in the wake of his departure in 2005, Greenberg said yesterday. Instead, it should have stopped writing credit-default swaps and hedged its holdings, he added.

Greenberg described the government's various AIG rescue plans as "going from one failed strategy to another".

Instead of giving AIG rescue money, the government should have guaranteed collaterals to AIG counterparties, Greenberg said. Chapter 11 bankruptcy protection for AIG should also have been considered, allowing it to renegotiate terms with counterparties, he added.

"There's only one way to pay back taxpayers, in my judgment. That is to rebuild AIG," Greenberg said. "Destroying it doesn't accomplish anything. Nobody wins."

He called on the government to convert as much of the debt into guarantees for AIG collaterals, extend loan repayment to 15 years from five years, and cut interest rates on the loans.

He also urged the government to reduce its stake to 15 percent from 79.9 percent, freeing AIG to raise private capital through a rights offering.

AIG should be given more time to sell non-essential assets when markets recover, he said.