Where’s the Ed Liddy we remember from Allstate now that we need him?

The last time Edward Liddy faced a vexing compensation issue, as chief executive of Northbrook-based Allstate Corp., he cut costs with all the finesse of a blunderbuss: He axed 6,000 of Allstate’s highest-paid agents.

That was then, this is now. As head of insurance giant AIG, which is 80 percent owned by taxpayers, Liddy seems to be going all wobbly on compensation issues.

Liddy is going ahead with $165 million in bonuses. That is the first payment of $492 million due to employees in a unit of AIG that would have put the company out of business last year had the U.S. government not come through with $173.3 billion in bailout money.

But, hey, those AIG traders were promised fat bonuses. And Liddy–who was brought in to clean up the mess the traders and product managers made–has decided the bonuses must be paid. Outside lawyers have told him so.

"Quite frankly, our hands are tied," Liddy, AIG’s chief executive, wrote in a letter Saturday to Treasury Secretary Timothy Geithner.

What ever happened to the Liddy who went after Allstate agents a decade ago like a scythe through chaff? No cautious legal counsel stopped him then.

The agents sued. The Equal Employment Opportunity Commission sued–twice. Liddy fought those lawsuits, and Allstate has won at every stage.

Michael Lieder, the lawyer who represents the 6,000 Allstate agents, is struck by Liddy’s newfound respect for the power of employment contracts.

"The positions he is taking at AIG are in direct conflict with the positions he was taking with regard to our clients," said Lieder, a partner with Sprenger & Lang in Washington, D.C. […]