"I went to a place to eat. It said 'breakfast at any time.' So I ordered french toast during the Renaissance". --Steven Wright ... If you are a devotee of time travel, check out this song...

Tuesday, March 17, 2009

Unsolicited Advice about the AIG Bonuses

Here's some unsolicited advice to the Obama administration about the AIG bonuses:

Whereas, if a company goes bankrupt, then it need not and often cannot honor its contracts, especially those for bonuses,

And, the only reason AIG did not go bankrupt is that we the people, in the form of the Federal government, bailed them out,

Therefore, AIG is in quasi-state of bankruptcy, and need not honor its contracts for payment of bonuses, especially if the government says they should not.

The upshot (to get back into more modern parlance) - contrary to what Larry Summers said over the weekend, the bonus contracts need not and should not be honored. Since our government has already given AIG the money, our government should sue AIG - take them to court - to compel AIG not to let the bonuses stand (if AIG can't recoup the money from the bonus payees, then AIG should return an equivalent amount of money to the government).

Let the case go to the Supreme Court, if necessary, where Republicans and Democrats are well represented.

13 comments:

Jason said...

Paul,

Why would you expect a failed business to behave responsibly with free money handed to it by the government as a reward for its failed policies ?

Seriously, in what universe does rewarding bad behavior ever encourage good behavior in the future ?

Jason

Paul Levinson said...

Jason - are you illiterate? :)

Seriously, read my blog post. Where does it say I expect AIG to behave honorably? To the contrary, I'm saying the admin should sue them.

Mike Plugh said...

Also, the main point here is that we own AIG. The US taxpayer owns an 80%(!) stake in that failed company. We make the decisions about what contracts we honor, and what bonuses we pay. Let the derivatives traders sue us for their money and make them stand up in front of cameras to defend themselves. That would be great catharsis for an aching and furious public.

Jason said...

I'm not illiterate Paul. I know you don't expect AIG to behave honourably with the money they were given.

I'm suggesting that the administration never should have been rewarding bad behavior in the first place.

Why is everybody so shocked that corrupt and failed businessmen would behave like this when they have just been rewarded in the past for behaving in an irresponsible manner ?

It was stupid to give them money to start with. Besides the employees in question probably deserve the bonuses. After all, had it not been for their criminal mismanagement of the company, AIG would never have gotten that big cash injection from the government. Seems only fair that they are rewarded for getting such a big pile of cash for the company.

It seems like it would have been dishonourable to not reward the people that made the windfall possible in the first place.

Paul Levinson said...

Mike - agreed - but the problem is AIG was already given the money! So we'll have to be the ones who sue them.

Jason - ok. I admit that, of all the Federal payouts, I was torn only about the money given to the financial institutions. At the time, however, I was hopeful that it might slow down the economic slide (which perhaps it did). Those companies should have been given much stricter guidelines.

Jason said...

Why would rewarding bad behavior ever be a good thing ? Is it really like these companies are going to be better managers in future ?

In all likelyhood the companies that have been "bailed out" will still fail, and all that has been done is to put off the day of reckoning and waste a lot of tax payers money that could have actually done something useful.

Paul Levinson said...

Rewarding bad behavior is never a good thing. I viewed it as necessary evil to prevent far worse damage of spiraling employment, etc.

I still do - I just am now very unhappy that more strings weren't attached to the financial bailouts.

Anonymous said...

You're right, Jason. All this fuss over the bonuses when we should be complaining about the fact that the BOMB (Bush Obama McCain Bailout) was passed in the first place. I guess these tea parties all around the country are a good sign, with one for Tax Day (www.taxdayteaparty.com) coming on 4/15, and (my favorite) an "End the Fed" rally (www.endthefed.us) coming on 4/25/09.

Anonymous said...

Jason, Paul, Mike, HJ, who defines "bad behavior"? Why would a jumbo company like AIG, that covers enough ground for our nat'l govt to see how bailing them out might delay or reduce the effects of a fast brewing global financial crisis, why would they want to displease, chase away their managers at at time when their expertise and experience are needed the most? The outrage over these bonuses is way overkill, and blame comes so easily. Just because fed gov't makes attempts to lessen the effects of the blows of this twisted financial system that led us to this point doesn't mean we should favor fed govt's right or ability to micromanage AIG. As a teacher, I've already seen enough of the results of attempts at micromanagement from a federal level! Thanks, feds, for the delay on the craziness going on during the initial AIG tremors, and also, thanks feds for NOT micro managing, thereby letting them hold onto some mid mangment when those are holding their fingers in the dam, rising waters other side. What is this "bonus buzz", are people really hoping for complete gov't take-over? Give me a break, we'll get enough of that when the loaves of bread and cans of beans run short.

Paul Levinson said...

anon: the outrage is over rewarding incompetence - I'm surprised you find that hard to understand.

As to the rest of your comment: the whole point of the Fed infusion of hundreds of billions on all fronts is prevent the kind of Great Depresssion you see coming.

So, you give _me_ a break, if I don't buy in to your defeatist pessimism.

DeputyFife said...

This would have all been a mute point if the free market would have been allowed to have been free. Yes a company would have went under, it likely will anyway. The taxpayers, you and me, would have not had our hard earned money squandered, and we wouldn't be having this discussion right now.

Paul Levinson said...

Well, I agree that your position is consistent with a 100% laissez-fair free enterprise economy.

But I think that would have led to far worse consequences than what we currently face. We saw some of that in the Great Depression - 25% out of work, soup kitchens, etc. That's why I prefer a free enterprise philosophy that allows for government intervention in times of extreme crisis.

Obviously, this is not a perfect or easy solution.

Anonymous said...

Of course they shouldn't pay the bonuses since they didn't earn them. What is more disturbing for me is that the government knew all along, if the news over the weekend can be trusted. How can Obama act as if the whole thing was new to him when he knew all along that these bonuses will be paid?
Jay

InfiniteRegress.tv