Wednesday, March 18, 2009


I really hope this dies in the current news cycle, but there has been a lot of fury by members of Congress, UAW members and the general population over the bonuses paid out to top executives at AIG, which was bailed out by the Bush administration (which I only mention to set the timeline of the bailout; Obama would have done the same thing). AIG's defense: they had to honor contracts made in the previous year to these employees. Honoring contracts regarding employee pay? How is this not a good thing?

I definitely don't want the federal government in the business of forcing any employee of any private industry to give back part of their salary beyond what they would owe in taxes. That would be a terrible precident to set, and while I'm not usually a big fan of the "slippery slope" cliche, I think it would be appropriate to use it in this case.

Many would and have argued that the rules for these salary contracts shouldn't apply because the company was bailed out. This may have been a worthy argument had the bailout bill stipulated any sort of regulation of AIG, through the firing of executives, the explicit elimination of bonuses, the elimination of dividends, etc. But there was no such language in the bailout bill for AIG. It was basically a free, no-strings-attached cash infusion to a business thought at the time to be too big to fail and apparently too big to regulate as well.

So it's the government's own fault that their hands are now tied by contract law. Maybe they should have just let AIG fail in the first place. Then the executives wouldn't have gotten bonuses and the government wouldn't have taken an $80 billion hit to the treasury. Or barring that, the government should have taken over the company so that they could actually enforce rules for the company, like China would have done. But because of the no-strings-attached cash AIG received, they are under no obligation to do anything about executive pay. Suck it, USA!


Jacob said...

I give this a whole thing a negative five zillion percent chance of dying in any upcoming news cycle.

I'm not as worried about precedent, though. I really don't think future breaking/finagling of contracts by the government really hinges on this particular instance. For me it seems like more of a waste of time/resources. The money recouped would be minimal, so it's not a financial necessity. I guess it would be politically popular, but it's not the type of thing that's going to give anyone a new bump in the polls or a windfall of political capital. It's really just an issue forced on politicians by various media, and some politicians are taking an unfortunate situation and turning it into a time for grandstanding and distraction.

Steve said...

Well that's nothing new.

I banged this blog post out in about 15 minutes and only now just re-read it. Not nearly as rambling as I thought it was!

Mary Francis said...

"But because of the no-strings-attached cash AIG received, they are under no obligation to do anything about executive pay."

Actually, there were exactly those restrictions in the Senate bill which Dodd stripped out (He finally 'fessed up' after the unequivocal denial he first issued.)

Mary Francis

Steve said...

There was a Senate bill to this thing? I thought it was entirely an executive branch bailout separate from any TARP money.

Mary Francis said...

Sen. Dodd Admits Adding Bonus Provision to Stimulus Package