If there was no plan to offer him 12.5M, then they had to trade him. Here's the question, would Liriano accept 12.5M for a one year offer? That right there is half of the FA budget for pitchers, several of whom could be had cheaper and were far more likely to succeed. The Twins' FO pretty clearly thought that playing chicken with Liriano on a 1 year deal was flushing 12M down the toilet, so trading was all they could do. And extending him... exactly when? He clearly didn't want to do it now, and you cannot blame him. Do you do it after the 2010 season? 2011? There's risk there, and it's clearly risk the front office wanted nothing to do with. I do agree they need to be abit less risk averse, but I'm not sure that Liriano is the poster child example for this.
I highly doubt that there were better offers on the table for Liriano, and if 12.5M wasn't an option, you take what Chicago offered...