NEW YORK (AP) – A Wall Street firm loses billions of dollars, nearly destroying its business and crippling the nation’s economy. But top executives still receive huge bonuses?

As crazy as that sounds to most Americans, paying such bonuses even after a company suffers big losses is common practice on Wall Street, and it’s at the heart of the outrage surrounding insurer AIG.

Employees of the insurer’s financial-products unit received $165 million in so-called “retention” bonuses – payments designed to keep valued employees from quitting. They are paid out no matter whether the employee had a great year or a horrible one.

In Wall Street’s high-stakes competitive culture, paying top people to stay in their jobs has been the norm for years.

“It’s basically a bribe, so your employees don’t bolt and take their clients with them,” said Chuck Collins, a senior scholar at the Washingon-based Institute for Policy Studies and an executive compensation expert.

Even though most bonuses paid to Wall Street employees are tied to performance, retention bonuses have ignited anger since the government began pouring billions of dollars into the financial system to keep banking and insurance firms from collapsing.

Despite the uproar, the payments have continued at several firms, most recently at investment bank Merrill Lynch.

“It’s part of this Marie Antoinette syndrome of Wall Street,” Collins added. “They’re completely in a bubble, and they don’t understand how these payments are perceived.”

They do now.

The bonuses at American International Group, which is now nearly 80 percent owned by taxpayers, have drawn howls of outrage from Congress and President Barack Obama. Lambasting the insurance giant for “recklessness and greed,” Obama pledged to try to rescind payment of the bonuses.

AIG has argued that retention bonuses are crucial to pulling the company out of its crisis. Without the bonuses, the company says, top employees who best understand AIG’s business would quit – an assertion that critics of the payments quickly rejected.

“I’m very skeptical that retaining the people who made the mistakes is a good idea,” said Rep. Barney Frank, chairman of the House Committee on Financial Services. “I think we have a strong case to get some of those bonuses back.”

Experts say it won’t be easy.

For starters, AIG’s retention payments were guaranteed in the executives’ contracts. By breaking them, AIG says it would risk triggering a wave of employee lawsuits. And the cost of those lawsuits would likely dwarf the size of the retention bonuses.

One way around the contracts would be to prove fraud. A 2002 law adopted after the accounting scandals at Enron and other companies allows publicly traded corporations to take back ill-gotten compensation.

On Capitol Hill late Tuesday, House Democrats were considering proposing new legislation to authorize Attorney General Eric Holder to recover bonus payments like the ones paid by AIG.

A day earlier in New York, state Attorney General Andrew Cuomo subpoenaed information from AIG to determine whether the payments made over the past weekend constitute fraud under state law.

In a letter Tuesday, Cuomo said 73 AIG employees received retention bonuses of $1 million or more – including 11 who have since left the company. Cuomo said the bonus checks were mailed Friday.

“These payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near-failure of AIG,” Cuomo wrote in the letter to Frank.

“Thus, last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout. Something is deeply wrong with this outcome.”

Critics say the government could have done more to prevent the AIG bonuses.

Peter Morici, a business professor at the University of Maryland, said the government could have forced AIG to re-negotiate the bonus contracts so employees would be paid less. He noted that the government demanded similar concessions from unionized autoworkers before agreeing to bail out General Motors, Ford and Chrysler.

“It seems like no effort was made to negotiate with the AIG people and that the government gave them whatever they want,” Morici said. “If we forced autoworkers to take less, we could have done it with AIG employees.”

As for AIG’s argument that failure to pay the bonuses would send employees running for the exits, some experts say that would be just fine.

“There’s a lot of unemployed Wall Street workers that could be brought in as fresh blood,” said Stephen Davis, a senior fellow and expert on corporate governance at Yale University.

Otherwise, Davis said, paying bonuses to executives of faltering companies risks creating a “a grab-and-go culture.”

“The danger is that this kind of culture could spread to other companies,” he said. “People could see this as their moment to get what they can before the gate closes.”

AIG’s troubles stem from its business insuring mortgage-backed securities and other debt against default. As the credit crisis took hold, that business imploded.

Since September, the government has shoveled more than $170 billion into AIG, which has operations in more than 130 countries.

AIG’s financial products unit had been led by Joseph Cassano, who stepped down a year ago after the division reported a loss of more than $11 billion on a book of contracts in the last quarter of 2007.

AIG representatives did not return calls seeking comment Tuesday. Spokeswoman Christina Pretto had said Monday that the company was in ongoing contact with Cuomo’s office and would respond to his requests for information.

Retention bonuses on Wall Street and in other industries are hardly new. Last month, the Wall Street Journal reported that Morgan Stanley plans to pay up to $3 billion in retention bonuses to 6,500 brokers in its joint venture with Smith Barney. Morgan Stanley has received $10 billion in bailout funds.

In a December survey of 264 companies across a variety of industries, business consultant Watson Wyatt Worldwide found that 9 percent of companies had added, or expected to add, a special retention bonus. An additional 21 percent were considering doing so.