Larry Summers' Ludicrous View On AIG Bonuses
On Sunday, Larry Summers explained to America why the administration had to let AIG give bonuses to bankers who blew the firm to smithereens: Because contracts are sacred.
Perhaps Larry will return this week to explain why the same sanctity does not apply to mortgage cramdowns.
Joan McCullough of East Shore Partners puts it this way:
"But you have to think about the consequences of breaking contracts for the overall system of law, for the overall financial system."
The above was spoken by Lawrence Summers on Face The Nation on Sunday morning.Oh sorry, Sherlock. Are you a tad confused because you know that Lawrence Summers is enamored with the idea of a "cramdown" which is mortgage industry jargon for the breaking of a contract? Are you wondering why all of a sudden he wants to defend 200 years of US contract law instead of hissing on it? Maybe his objective in performing this shameless flip-flop is with a view towards inciting a distancing headline like this in the NY Post:
TEAM O RIPS AIG BONUS BONANZA
What Summers is ignoring here is that, if not for the taxpayer, AIG would be bankrupt, and the folks holding those contracts would be standing at the end of the creditor line. Thankfully, Larry Summers' boss has since intervened.
See Also: Eliot Spitzer on the REAL AIG Outrage
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I'm almost afraid to say this, but I'm in almost complete agreement with Larry Summers (and yes, Rush Limbaugh) on this. You can't retroactively decide not to pay people the money that they have earned according to legally binding contracts agreed to by both sides. And I find the coverage on this is becoming more and more simple-minded. Why is there no talk, when it comes to who's accountable, about all the members of congress who voted over and over for deregulation. Why are the millions of homeowners who knowingly purchased homes they couldn't afford not held as equally responsible? Why aren't the (non) regulators under this much scrutiny? Don't the rating agencies, SEC, et al have a lotta 'splainin' to do??
These traders and quant people earned their bonuses, regardless of how things ultimately turned out, even without a bailout. Yes, they'd be in the credit line - that's the point. It's money that is owed to them!
I'm not a banker - I had the chance a long time ago and decided it wasn't for me - and I'm not rich by any stretch of the imagination. I just think people need to put their thinking caps on and stop following this lynch mob mentality. People are so easily lead.
I saw Summers Sunday and frankly he came across as not very bright.
I know that he is supposed to be sooo brilliant but you would never have surmised that from that poor performance.
Plus some of that vague verbiage of his sounded just a bit dishonest. Ask any lawyer. There isn't a contract that can't be broken or abrogated.
I know from 35 years of experience that most of the contracts we had ended up in the shredder.
It got to the point where there wasn't even the formality of negotiation. They were just ignored.
Yeah, you can break any contract if you are big and powerful enough, have money and junk yard dogs for lawyers.
Perhaps so, but relatively unimportant in light of a 50 trillion world economic hit.
If the USA wanted to run the company, they should have taken it over.
Spare us the political posing.
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"On Sunday, Larry Summers explained to America why the administration had to let AIG give bonuses to bankers who blew the firm to smithereens: Because contracts are sacred."
And these guys may just GET that money, because of the sacredness of contracts. But try to convince thousands of union workers who are pressured to alter their contracts for the good of the company just how sacred contracts really are.
EXACTLY!!!
If the bonuses haven't been paid, there are theories of law which allow for their non-payment in this circumstance. That the outside lawyers warned of the possibility of treble damages awards simply means that lawyers like John Yoo and the Mafiosa "mouthpieces" are still working.
Yeah. Does anyone believe a civil jury, anywhere in this country, would return in favor of the "quants" who would sue for breach of contract? Give me a break.
re: "...there are theories of law which allow for their non-payment in this circumstance"
a la 'force majeure' - a superior force. its legal. and it's indisputably appropriate, considering the circumstances.
What is unconscionable is that the very people that caused the meltdown should benefit from having done so. Regardless of contracts, to pay these people retirement level bonuses after they trashed so many others retirements, homes, jobs, and lives is beyond the pale. They need to be criminally prosecuted, not rewarded.
I turned the channel in disgust and disbelief when i heard his statements on Sunday. It was ridiculous to suggest that a bankrupt company was operating business as usual. If AIG, Morgan Stanley, Merrill, Citi etc. had gotten private funding, there would have been restrictive covenants and conditions on the uses of the funds. Bonuses would have not been allowed except in rare circumstances until after some established level of profitability had been achieved. You are right ... bankrupting the company and getting in line with other creditors is not an option. The contract argument is nonsense. Bonuses are paid from profits.. there are no profits.
Not to mention the fact that the same people who are in support of AIG upholding the contracts are the same ones who were in favor of putting GM into receivership so that they could break the contract with the UAW!!!
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