How to Recoup the AIG Bonuses

Let's get real. This may be a nation of laws, but contracts are not sacred, and employment contracts are less sacred than any. When Enron's executives destroyed the company, Enron's secretaries lost their pensions. When General Motors' executives failed to plan for the possibility that oil prices might go up or pollution controls might get serious and ran the company into the ground, everyone agreed that its retirees, who fulfilled their end of the bargain years ago, must accept that they aren't going to get what their contract says. Every company that goes into bankruptcy -- and AIG would have been bankrupt several times over were it not for Federal subsidies -- rewrites employment contracts. Indeed, as airline and steel company employees know all too well, sometimes that is the main reason the company goes to the bankruptcy court in the first place.

A contract is only worth as much as the party on the other side of it. The scandal of AIG is that AIG is using Federal money to pay its side of contracts that it never should have entered -- and that it never could have fulfilled. Absent the Federal subsidies, AIG would be giving no million dollar bonuses. Nor would it be paying out billions to Goldman Sachs and other sophisticated players that knew that the swaps they gambled with could only pay off if AIG had the money to pay them - and would have known, if they had bothered to do the arithmetic, that it didn't.

We, the people, are making good on swap contracts that AIG cannot, because our government thinks that if we don't, the world financial system will collapse. If the government is right, and I have no reason to doubt that it is, this is a reasonable decision. AIG and the banks on the other side of its swaps bet so much and lost so big that we believe we must come to their rescue.

But let's be clear. The companies and traders and executives who are getting our money have no right to it. AIG and its swap "customers" made massive bets, and they all lost. By all rights, they should pay the price. AIG's swaps should be worthless and the companies that foolishly relied on them should be learning that before you make bets of that size, you should consider the possibility that the loser won't be able to pay off. The traders who sold the swaps would discover that they have bonus contracts enforceable only against an empty shell of a company. In a free market, sophisticated, wealthy individuals and businesses, all of whom are in the business of understanding these kinds of transactions, have no claim on our sympathy or our money.

AIG, its employees and its counter-parties pulled a fast one on us. We've been had. A generation of deregulatory true-believers never thought this could happen. Now, we know better. We need to reclaim the bonuses. No need to go to law: just threaten to announce the names and addresses of every bonus recipient who refuses to return it and exactly what he or she did to "earn" it. We ought to ensure that no counter-party on an AIG swap is paid in full. If that means trouble for Goldman Sachs and the other punters that lost their AIG bet because they won too big, let them come to the government for bailouts -- but make them admit their mistakes openly, make the subsidies transparent, and include a complete ban on dividends and limits on pay to government rates until every cent of taxpayer money is returned.

Comments

[munki]

Absent the Federal subsidies, AIG would be giving no million dollar bonuses.
Agree... contract is NOT sacred...

Because, some contracts are written purposely in violation of law / unenforceable... why companies do that? Especially, a small potato like us cannot afford expensive attorneys to rebut it in court system...

So... what is your choice? In this case... YES... TARP money is not AIG generated money...
It should be treated like BANKRUPTCY rescue money and not a grant...

[laocoon]

AIG bonus = sacred
Negotiated Union benefits= not sacred= sacrilege to capitalism

[Mixpixlix]

This is just one more example of US versus THEM that has permeated American business board rooms for more than two decades.

It's ludicrious to say contract contract be renegotiated and changed. As the article points out there are tens of thousands of former employes of large companies who will gladly share the stores if how they had to SETTLE FOR LESS than promised. Interestingly, it's seldom the CEO, CFO, COO or Chair of the Board who gets less. The thin air in the Ivory Tower works like a drug convincing them they're entitled, even after running a business into the ground.

The only good news is that people seem to be waking up to the fact they've been lied to over and over and over again. That all the talk about compromise, for the good of the company, etc., etc., was just corporate propaganda to give as much as possible to as few as possible.

We're mad and we're not going to take it any more...I hope.

[Lemastre]

Withhold from the bailout money going to AIG and other such bailout beneficiaries amounts equal to the bonuses these firms plan to or have paid.

[breakingpoint]

A contract is only worth as much as the party on the other side of it."

Exactly, which is why we are not going to pay China back.
We will let them have Taiwan and Tibet.

let AIG fail, sell it off the good stuff and let it be a lesson and while we're at it

let's audit the FEDS
HR-1207

This whole economy is one big ponzi scheme

[MagicalPossibilities]

AIG is the new Enron.

[hw]

As a result of their greed and short sightedness AIG is now synonymous with 'Crooks'.

They can argue contract law all they want, but 'Crooks' is the public perception of them now.

They just squandered any good faith or trust their name may have had.

Hope it was worth it to them....

[gracie99]

All common sense. And the fact that it is common sense highlights how the Obama administration, House and Senate were complicit in creating the current situation.

IMO, the fact that bail-outs were structured to allow this sort of abuse is indicative of the rich supporting the rich, employees of the federal government playing footsie with business to guarantee that such vast wealth flows to them too eventually.

So far, for all of Obama's supposed ire over this matter, there doesn't seem to be any indication that he and his administration are any more sincere in working for all the American people than Bush and his administration were.

(Where are the AIG stockholders in all this? Why aren't they suing over being defrauded by AIG executives over this scandal? If I learned that executives of a company I owned stock in had manufactured contracts that would give them obscenely fat bonuses even if they brought the company to the brink of ruin...)

[laocoon]

brink? AIG went over the edge. we brought them back. well past the brink.