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“It was distasteful to make these payments.”

AIG chief Ed Liddy, testifying today before a House Financial Services subcommittee. He was, of course, talking about the infamous $165 million in retention bonuses that the bailed-out conglomerate paid out to employees. Liddy—who took charge in September and is working for $1 a year and no bonus—told Congress that employees who took home more than $100,000 in bonuses have been asked to return at least half their sum.

Good move. But Liddy is still under scrutiny for approving those bonuses in the first place. He told Congress that he determined that the bonuses couldn’t be legally altered. And he said he believed that retention bonuses at AIG’s financial products unit were necessary so that competition wouldn’t steal the company’s best talent.

That argument is weak. As my Fortune colleague Carol Loomis said on the Charlie Rose Show last evening, optics are ever important, and Liddy would have been far better off telling AIG employees that it wouldn’t look good to take bonuses, so you’re not getting yours. The New York Times‘ Gretchen Morgenson noted on the show that there aren’t many financial-services companies hiring. Who would steal AIG’s best talent?

When in crisis–or rather, always!–do the right thing. J.P. Morgan Chase CEO Jamie Dimon tells a story about his team refusing to take bonuses at Bank One when he took charge of that company and it was on the brink almost a decade ago. Click here to read “Jamie Dimon: No bonuses for you!”Pattie Sellers