Critics of AIG Contracts Had an Easy Choice

I listened a little to some of the outrage today surrounding the AIG bonuses. Even the President of the United States has weighed in on the subject, directing the Secretary of the Treasury to use all available tools to ensure that the contracts and bonuses are not honored.

From my view, a contract is a contract. They get the bonuses. Do I have to like it? No. Do they have to have earned the bonus to get it? I don't know -- the contract says what they have to do to get a bonus. Not me.

I know that the government owns the large majority of AIG. If I buy 51% of General Motors, can I march right in there and start telling the UAW what they are going to get for a pay package? No -- sanctity of contract. I could have a great influence on contracts going forward -- but I have no influence on the pre-exiting contracts made between the corporate entity and labor -- or suppliers, financiers, etc.

This is the downside of bailing out AIG. One of many downsides -- the loss of capital is another one. When you buy it, you own it. Warts and all.

Now, there is a way to severe pre-existing contracts.... a way not seen viable, presenting systemic risk. They should have just let AIG go bankrupt.

But now instead of letting the losers fail, we let the losers win on the taxpayer dime.

 

[Racovius]

A contract is a contract? what do you mean? The government suspends Habeas Corpus law in 2001 for foreigners. If the government has the power to do that, well ****; it owns more than 80% of AIG. Saying "...the government owns the large majority of AIG..." is an understatement. The government has bent the law domestic and international many times. Why not do it again this time.

 

[Silverbird]

This is rear view mirror staring, the contract was, as it was. But it shows how flimsy the oversight of the Board is at AIG. This is one company that deserves a takeover. Obviously AIG's ownership stockholders didn't want to know what was going on.

Backtracking on what was done in the past IS the equivalent of suspending Habeas Corpus law in 2001, it makes the law subject to whim. We really do not want to continue on that path, that's the sort of thing Chavez in Venezuela does, and who wants to do business in Venezuela if sucessful businesses just get nationalized?

But we CAN do something now, get rid of the useless Board at AIG.

 

[Scribbler]

The whole situation is a complete disaster. The federal government has thrown $173 billion dollars into this. Exactly what has it earned us?

A contract is a contract. Sanctity of contract is one of the fundamentals of successful commerce. Which is a reason it is protected by law. There are reasons to break contracts, and they are handled through the bankruptcy system. Destroy the sanctity of contract and we leave the knowledge that people will do what they must do for the whim of what they "feel" they must do.

The CEO is supposed to be doing this job for $1 a year in the interest of public service -- or something like that. Just goes to show that no good deed goes unpunished.