The U.S. government owns AIG, they installed its CEO, and therefore the government should be calling the shots at the troubled and controversial global insurance colossus.

That's what legendary former chairman and CEO of General Electric Jack Welch told CNBC's Larry Kudlow in a recent interview.

"Now why are they [the U.S. government] not taking charge of their situation?" asked the famously "hands on" GE manager.

"They ought to be working as a board of directors with their CEO on what the compensation ought to be," said Welch.

"Then they ought to be agreeing with their CEO, who's making a dollar a year, and doing it as a good citizen, or they ought to get their own man in there. This administration ought to put somebody in."

But, instead of actively managing AIG as owners of the company, the government wants to be an outside critic, according to Welch.

"I don't want this $180 billion to just go up in smoke because we're all fighting with each other," he said.

"I don't think these guys ... are acting like owners who want to get their $180 billion dollars back. We need a government group representing the owners who are responsible for dealing with the CEO in the same way governance happens in any company," said Welch.

The continuing story of where AIG bailout money is going took another unexpected and potentially controversial turn when The Wall Street Journal reported that some cash given to AIG would instead go to hedge funds that bet against the housing market.