The title should give you a clue as to my thoughts on the calls for the feds to seize the $165 million in bonuses that certain AIG executives are due. Unless there’s a better reason than political expediency, those bonuses need to be paid out to preserve the sanctity of the contract, which is an underpinning of capitalism.
Now, what those executives do with the bonus is another matter. Mitt Romney made the point that they could voluntarily forego the bonuses by relating a similar situation he worked out at Bain & Co. Fausta Wertz, as part of a poll attached to a longer piece, suggested splitting the bonuses with the workers.
Of course, we shouldn’t lose sight of the bigger picture. The Wall Street Journal’s editorial board unleashed a rather devastating broadside. Oh, where do I begin? There’s the $20 billion from the feds through AIG to European banks (somewhere north of an order of magnitude bigger than the bonuses, and no known legal obligation to pay off the Europeans), the regulatory EPIC FAIL that led to AIG’s collapse, the role Elliot “Client #9” Spitzer played, and CEO Ed Liddy’s desperate attempt to remain firmly attached to the government teat.
Revisions/extensions (8:01 am 3/17/2009) – Ed Morrissey makes the same point a lot more coherently. He includes another kicker – the Obama administration could have let AIG lapse into bankruptcy, which would have voided the contracts that specified the payouts.
This is an attempt to politicize an issue that is a non issue. It’s one more example where Congress (remember The Won was a member and in fact pushed for the second tranche) didn’t know what they were doing and screwed up with “emergency” legislation that had zero details included.
I keep seeing people–self-described “educated” people–say, “And this is why we should let Congress regulate banking and business more!” with absolutely no concept that Congress regulating that which it doesn’t understand is what precipitated the whole meltdown in the first place.
That drives me more nuts than companies’ internal workings.
What’s your view on the “sanctity of the contract” vis a vis the insurance contracts AIG wrote?
They were contracts, yes? They were violated, yes? Perhaps because of willful malfeasance on the part of those who wrote them? Perhaps due to spectacular incompetence at risk management by the now-bonused?
How does one distinguish which “contract” is more sanctified?
I think in this case it’s pretty straight forward. Congress had the choice to allow AIG to go bankrupt. If they had, all of these contracts would have been nullified or settled via the bankruptcy procedures. I think it also would have been acceptable to make their initial support contingent on changing some of these not unlike a prepackaged bankruptcy. The problem with so much of what comes out of Congress is that they have become very shallow thinkers, not willing to look at the implications or details of the laws they pass. Hugo Chavez gets to implement laws based on what he “wants” to happen rather than the language in the laws. I suppose we could operate like he does….oh wait, that’s exactly what Congress wants to do!
Ok, AIG is burning all the cash given through FED. But what I don’t understand is how much would it help by cutting the bonuses which are less than 100 times the bailout money.
We need to stop them from wasting bailout package. Though cutting bonuses is needed to raise the morale but it is drawing too much attention!