Monday, March 16, 2009
"every legal avenue"
The New York Times reports that President Barack Obama has called on the Secretary of the Treasury to "pursue every legal avenue" to prevent the payment of bonuses by AIG to the architects of the world financial crisis we are now in. This suggests that lawyers will be asked to pore over existing legal materials and statutes to find out if they can be prevented (or if the Merrill Lynch bonuses can be recaptured).
Can Congress pass a law prohibiting academic institutions that receive federal money from paying law professors? Just wondering.
Glenn Greenwald, Talking Points Memo, Firedoglake, and other blogs have addressed the "so sorry, the law ties our hands" issue, and have all been dubious about the whole thing. Lawyers and those in the know were involved in this analysis. I bow to such expertise, which reaffirms my "bs alert" meter. After, the rule of law is clearly very important in these troubling times, right?
As to the Constitution, Justice Kennedy's concurrence in EASTERN ENTERPRISES v. APFEL seems a possible avenue of concern when dealing with federal power over contracts. That is, the idea there is some limits, putting aside the proposal here.
Or, we can just give the company immunity. Hey, worked for telecoms, right?
To respond to mis's snarky question, should Congress pass such a law, it would almost certainly be challenged on First Amendment grounds, as the undoubted motive for such a law would be retribution against (certain) law professors for saying outrageous things. There is no First Amendment issue raised by trying to prevent the bonuses.
Could Congress pass a law putting restrictions how much law professor can earn. Why not, especially if (and perhaps only if) it is preceded by a preamble about the "national emergency" facing the country and the need to engage in special measures. See, e.g., the 1934 Blaisdell case, which most certainly upheld an "impairment" of contract during the Depression.
I will try to track down some of the postings mentioned by Joe.
I'm pretty skeptical of this particular way to eliminate the payments. Broad as I think Congressional power is, this seems to me a due process violation (though I haven't read Blaisdell in quite a while and probably should before I print this; but I won't). I agree, though, with the more general point that the claims of "tied hands" are weak; where's Elihu Root when you need him?*
*There's a famous story about Root. John D. Rockefeller once said that "All of my other lawyers tell me why I can't do what I want to do. Mr. Root is the only lawyer who tells me how to do what I want to do."
Not that Root was an earlier version of John Yoo or anything.
that all bonuses received by employees of banks and other financial entities receiving any federal bailout money since, say, Dec. 1, 2008 (this would apply to Merrill Lynch just fine) at the rate of 100%
I am sure that there is supposed to be a “would be taxed” in that phrase somewhere.
To respond to [mls's] snarky question, should Congress pass such a law, it would almost certainly be challenged on First Amendment grounds, as the undoubted motive for such a law would be retribution against (certain) law professors for saying outrageous things. There is no First Amendment issue raised by trying to prevent the bonuses.
If they decided to only fund schools that didn't hire law professors, I don't see the problem. They are not obligated to fund anyone or everyone, and they can certainly put strings on that are "content-neutral" (or even just viewpoint-neutral).
And given Summum (which I personally think was a horrible decision), you might even argue that gummint has the right to choose its own "message" so that even viewpoint advocacy is now permissible.
Blaisdell provides interesting reading, from citation of the "The present nation wide and world wide business and financial crisis" on.
I'm not sure that it hurts the Prof's case ... its language could help it in various particulars.
As to mls' point, why would Congress pass such a law? Focus on the matter at hand please, including the congressional bailout that can reasonably include strings given the nature of the situation. And, note that the people are still getting paid.
But, if the funds has strings such as institutions that claimed to need them gave hefty bonuses to professors, sure, Congress might pass a law to restrict such bonuses, especially if it can be shown that they were incompetent or worse in some neutral fashion (e.g., research professors whose work product was shown to be shoddy or irregular).
Well, maybe so. Its just that I can’t figure out why exactly it is that we are giving $30 billion to AIG in the first place. I know it is said that we have to do this to protect the financial system, but I don’t understand what that means, and, frankly, I am starting to suspect that most of the people who are saying it don’t know what it means either.
What do we think that AIG is going to do with the money if it doesn’t pay bonuses to its employees? Pay off CDOs to other financial institutions, right? So what makes us think that the money we “claw back” (yeah, I watch CNBC) from AIG execs won’t go to fatten the bonuses at Goldman Sachs or, worse, one of those damn French banks?
As I understand it, AIG has given three reasons why it needs to pay these bonuses: (1) it is contractually obligated to pay them; (2) some of the employees who would get these bonuses actually earned them; and (3) if it doesn’t pay them, it will have difficulty retaining key people it needs to run its business. None of these reasons appear facially ridiculous to me. There may be strong arguments on the other side, but all I hear are populist outrage and assertions that the government can break any contract it wants. If I were the cynical type, I might suspect that the people who are yelling about the bonuses are mostly interested in ensuring that the populist outrage is focused somewhere other than on them.
If the government wants to withhold some or all of the $30 billion unless AIG renegotiates its bonuses, I have no problem with that. But that is very different than having Congress abrogate the obligations of existing contracts, something that should be frowned even when law professors are not involved.
I think the gold clause cases are probably more applicable than Blaisdell.
If bonuses for employees of failed companies are against public policy it doesn't matter when they were signed.
Cathartic tho' a statutory clawback might be to enact, it is way overkill.
A simple witholding of the bonuses from the guys who ran the CDS boiler shop together with an action for Declarative Relief from the contract on any of the manifold equitable grounds would risk no cross-default bullshit argument from the Cochons Sans Frontieres, salve the public wound, and risk, at most, losing and paying attorney's fees to the unlikely prevailing poor unfortunate.
Just a second.
We're talking about (1) a 100% confiscatory tax, (2) enacted after such time as people would have acted on the presumption of being able to receive this compensation, (3) directed at a so specific a group that only one corporation falls within its ambit, right?
I assume that people would agree that, were this statute establishing a criminal penalty, it would be both a bill of attainder and an ex post facto law. So the question seems to be whether the sudden and retroactive imposition of a tax ought to be treated as if it were a criminal penalty.
I think that it is at least arguable that it should be. I say that because the next time that Republicans control both the Presidency and Congress, I don't want them to light on the bright idea of taxing all profits from provision of abortion services, contraceptive services, stem cell research, and God knows what else -- retroactively -- at 100% and then smile as they point to this as a precedent.
What do the contracts say? Surely the bonuses are not unconditional - if they were, they wouldn't be bonuses. If they are conditional, aren't the conditions based on the performance of the company?
Why can't the Justice Department encourage outside attorneys, armed with contingent fee agreements as was done in some of the successful tobacco cases, to chase after the firms paying such bonuses and the bonus recipients themselves? Surely outside attorneys can come up with clever arguments. How about creativity with failure of consideration or public policy arguments? Or the rights of the U.S. as equity holder in such firms?
What do the contracts say? Surely the bonuses are not unconditional
Yes, what do the contracts say. But also, surely taxpayer dollars are not unconditional.
I mean, c'mon.
Are the employees at this AIG division the equivalent of economic terrorists? Do they know "where the bodies are buried" and have leverage over the powers that be? Is it a matter of too big to fail or too big to be transparent?
Read the idiot Richard Cohen's column in the WaPo today (3/17/09) critical of Jon Stewart for piling on the hapless Cramer. (It's too bad Seinfeld had closed shop, else his writers could come up with a Kramer v. Cramer episode. Maybe SNL will follow up.) Cohen says the business media had nothing to do with the crash. Cohen points to the people in these firms too big to fail maintaining and losing their investments in their companies, sort of as an excuse. Did Cohen expect them to silently sell? That doesn't work, as certain disclosures are necessary, failing which possible jail time. If they had sold, that news would have brought about the crash earlier on Bush's watch. No, this has been an insiders game. Unfortunately the regulators are also insiders of a sort. And CNBC accommodates them all, as they are also insiders of a sort. Perhaps it is time to consider conspiracy theories, including with some on the government side. This is like the iceberg, with only 1/7th above the surface.
mls now discusses the matter at hand, ignoring the problem that the jab against law professors simply didn't follow. This is bad pool. Or, maybe it's a "hey, I can show some blind populist anger" turnabout is fair play lesson?
As to not understanding why sometimes letting things fail will cause major problems, including given how many ripples the failure of AIG will cause, this has been covered. But, the details, including how to save them, is difficult, surely.
But, I'm unsure if mls and some others are really looking into the matter fairly. Sorry, the criticism, including the updated link, is not just "populist anger," but addresses "the other side." Not that "populist anger" is unnatural in this case.
This includes the contractual obligations (that are rarely black/white, even when terms look to even some lawyers airtight), how AIG performed, etc.
As to Greg, the proposal terms does not just cover the acts of one company. And, it can be a civil matter, which are treated different ex post facto wise etc. than criminal ones.
Anyway, recent news suggest that blame can be put all around, including the government not properly providing adequate oversight, strings, and pressure way before now. Given this, populist anger (better known as democratic feedback) is appropriate.
Even assuming that the Contract Clause does not apply, I would suggest that abrogation of employment contracts in order to enrich the government's interest in AIG is an unconstitutional taking.
An interesting argument could also be made that the Ninth Amendment protects a right to contract (excepting fraud and unconscionable agreements) given that such a right has been well and long recognized by society.
To the extent that it was not retreated from, the poorly reasoned Blaisdell emergency exception is likely to be distinguished and limited to catastrophes on par with the Great Depression and not to garden variety recessions.
Sandy, I doubt the First Amendment would protect your tenure and wages from congressional predations so long as the statute was speech content neutral.
On the policy side, the socialist proposition that Congress has the power to abrogate and rewrite the contracts of any private entity that receives federal money ought to scare the hell out of the tens of millions of folks whose contract rights would then be engendered.
That must have been a quick trial preparation such that little Lisa's bro can jump from torture to AIG so quickly:
"Even assuming that the Contract Clause does not apply, I would suggest that abrogation of employment contracts in order to enrich the government's interest in AIG is an unconstitutional taking."
If the government as an equity owner takes action to protect its interest in AIG, how is that a taking? If a non-governmental equity owner takes action to protect his interest, that does not trigger the 5th and 14th Amendments taking clauses. The government can wear two hats. The "torture strategy" being used by AIG doesn't pass the smell test just as little Lisa's bro once again fails the constitutional test.
I'm actually sympathetic with Greg's argument that one might well confiscatory taxation as a "punishment" subject to the ex post facto clause. But, for better and worse, it's been settled now for over 200 years that the clause applies only to what courts denominate "criminal penalties," and taxation doesn't count. The most outrageous applications of the criminal/civil distinction include court's failing to view deportation as a punishment and to label collateral review on habeas corpus as civil (and thus no entitlement to an attorney, even on death row). The legal mind at work....
Shag from Brookline:
Read the idiot Richard Cohen's column in the WaPo today (3/17/09) critical of Jon Stewart for piling on the hapless Cramer.
My take on that here. Send a note to Cohen as well. ;-)
As to the second update, that article has to be read to be believed. To state just one problem, see here for the double standard and other b.s. found there.
As to the civil/criminal divide, I am sympathetic to SL's comments, but note we should have perspective as to the civil burden here. It is not "100%" of their salary or anything. It isn't deporting the people involved. It isn't a matter of seizing their homes etc.
Also, it isn't even criminal in fact, as "civil" judgments often are. Shag and others address that even a due process or takings argument (to bring up Apfel again) is difficult hard to prove.
Thanks for the partial support; I wish that you had commented on my parade of horribles, though. Let's say that I think that everyone who worked for AIG Financial Products, and whoever at AIG HQ approved their actions, should forfeit every dime in salary they ever made by passing a retroactive tax bill, and I specifically say it is because I think they are guity of fraud. Would that catch anyone's attention?
Surely there is some point at which the combination of bill-of-attainderlike, ex-post-facto, explicitly punitive, maximal imposition of a "civil penalty" via taxation becomes unconstitutional. (Perhaps it would at that point become a taking, in which event we have to add that the government intends not to offer compensation.)
Because this combines the above characteristics, this ought to be just about the hardest case for the notion that a civil penalty cannot be subject to some combination of the ex post facto and bill of attainder clause. Do any of the tax policy cases address total confiscation of huge bonuses for people not convicted of anything? (Rep. Gary Peters has introduced legislation that would do exactly that.) At some point, the pretext that the tax -- which isn't motivated by raising revenue, shifting burdens, increasing or decreasing any taxable activity, or any of the other standard rationales for tax policy -- is not a punishment ought to become untenable.
As for Joe's point that they aren't taking away a house or something, they're taking away (to understate things) more money than any house I've owned has cost, and surely enough to escape any de minimus argument.
Finally, as much as I appreciate Glenn Greenwald's work, he is entirely off base here. The same principle applies to AIG and the auto companies: if both sides don't agree to renegotiate the contract, you can't impose a new contract on them.
In the latter case, the UAW agreed to a new contract because it had a stake in the continued existence of these jobs. Had they not, and had Congress held firm to such givebacks being a firm prerequisite for a bailout, the result would have been no bailout.
Here, the AIGFP folks don't give a fig whether AIG lives or dies so they have no incentive to renegotiate; if Congress conditions a bailout on their agreement to renegotiate, the result is no bailout.
The law applies identically to each; the difference is purely in the willingness of the parties to renegotiate. Had the UAW held firm, obtained the right to bonuses, and Congress passed a bailout anyway, Congress's hands would indeed be tied if they tried to go back and take away UAW members' bonuses now.
They could break the contracts, sure, but they would owe compensation. The exception would be if there were fraud. Sadly, while AIG is not in bankruptcy, its own collusion with its subsidiary make arguing for reformation of the contract due to fraud an unlikely outcome due to its own unclean hands.
Shag from Brookline said...
BD: "Even assuming that the Contract Clause does not apply, I would suggest that abrogation of employment contracts in order to enrich the government's interest in AIG is an unconstitutional taking."
If the government as an equity owner takes action to protect its interest in AIG, how is that a taking?
If the government is acting as just another equity owner in AIG, then it should be liable for the contracts entered into by AIG.
If the government is acting as the state to eliminate the property rights of AIG employees to enhance its equity position in AIG, that appears to be a taking.
From The Hill:
“On Capitol Hill, dozens of lawmakers proposed competing bills to tax AIG in order to make up for the bonuses, suggesting they have little faith in Obama’s call for his administration to use every “legal avenue” to retrieve the money.
Sen. Charles Schumer (N.Y.) and other Senate Democrats started the bidding with a tax as high as 91 percent to recoup AIG bonuses if executives refuse to give them up.
Later Tuesday afternoon, the dean of the House, Rep. John Dingell (D-Mich.), upped the ante to 95 percent. Then Rep. Steve Israel (N.Y.) and a band of fellow House Democrats upped it even more at a press conference where they suggested a 100 percent tax on the bonuses from bailed-out companies.
House Speaker Nancy Pelosi (D-Calif.) topped that off with a demand that the House Ways and Means Committee come up with legislation this week.”
Some are suggesting that this legislation would be a bill of attainder, but no one is in the mood to worry about legal technicalities like that. And if the courts should uphold this tax, think of how much fun it will be when people start proposing a 100 percent tax on Members of Congress who voted for the bailout.
Another problem is that some of the bonus recipients live in London, so I guess we will have to resort to extraordinary rendition for them.
Meanwhile, on the other side of the aisle, Senator Grassley suggested that AIG executives commit suicide.
That’s the problem with Republicans, always relying on volunteerism.
Little Lisa's bro, after a grueling trial, comes back with:
"If the government is acting as just another equity owner in AIG, then it should be liable for the contracts entered into by AIG."
How is the equity owner "liable" for these contracts? Is this the corporate law in Colorado, where trial lawyers cross examine trees for hitting their clients's cars? The equity owner may take "subject" to contracts that were lawfully entered into by the corporate entity. But equity holders do have some rights in that capacity. Let's get the facts on whether these contracts were lawfully entered into. Perhaps there is liability to the equity owners on the part of the officers/directors authorizing such contracts. Perhaps such contracts, under the circumstances, were against public policy. I wonder what some depositions and other discovery might reveal. Remember the tobacco cases. Legal theories may develop that will blur all the black letter law little Lisa's bro relies upon in the simplicity of his legal thinking.
The problem with Greg's "parade of horribles," is that it is not really what is being proposed.
We are NOT talking about "should forfeit every dime in salary they ever made" ... so, yes, monetary burdens can lead to valid constitutional claims (as noted by some here), but there is a degree involved.
I do think the best path involves targeting AIG as a whole, not those holding contracts invalid in particular. Though apparently there is a way to arrange things for the company to say "no bonus or we will restructure so your section will be bankrupt."
[The fact the unions agreed was noted. I'm sure that if AIG wanted, and legitimate pressure was put on them to "want" it, AIG could have negotiated here too. It wasn't "sorry nothing we can do."]
As to the worth of the house argument. Some people are taxed more than others make. This doesn't make make the tax unconstitutional. Proportionally, for the people involved, it is not akin to losing a house. A house sometimes protected even in bankruptcy.
As to fraud, the more things are being examined, the more this seems possible. As to Glenn being wrong, his latest entry links to a NYT lawyer debate that suggests he has company in his wrongness. This includes Charles Fried being suspicious of AIG's argument.
Shag raises various interesting questions. Also, the citation of the gold clause cases is interesting. More info is required to make a final determination of what should occur, clearly.
Not addressing the confiscatory tax issue for the moment, and leaving aside the inapplicability to the federal government of the Contracts Clause--as regards Blaisdell as precedent, might I suggest that to consider it so for the wholesale abrogation of the AIG contracts requires a fair bit of stretching?
As someone else rightly mentioned, Blaisdell IS a "poorly reasoned" decision--it utilizes the old Constitution is not a suicide pact and a Lincolnesqe "all the laws but one" premise and a great deal of dictum as, I would suggest, obfuscatory tactic to do what it thought was "right." Having said that, the holding is somewhat limited-- and careful not to tread on the ground that the AIG bonus payments would.
Dictum aside, the decision upholds only the lengthening of the redemption period for mortgage foreclosure. But the decision, faulty as it may be, is clear to point out that that the redemption extension is "a temporary restraint of enforcement."
The Court further notes that:
"As already noted, the integrity of the mortgage indebtedness is not impaired; interest continues to run; the validity of the sale and the right of the mortgagee- purchaser to title or to obtain a deficiency judgment, if the mortgagor fails to redeem within the extended period, are maintained; and the conditions of redemption, if redemption there be, stand as they were under prior law. The mortgagor during the extended period is not ousted from possession, but he must pay the rental value of the premises as ascertained in judicial proceedings and this amount is applied to the carrying of the property and to interest upon the indebtedness." 290 U.S. 398 (1934)
I think the instances are distinguishable-- and the cheat of an inch won't steal the yard.
The NYT has an OpEd dated March 17, 2009, by Prof. Lawrence A. Cunningham titled "A.I.G.'s Bonus Blackmail" at
that better articulates than I in suggesting that the fat lady has not yet sung on the the AIG bonus controversy. I continue to be amazed at the creativity of the legal profession at times like these. Remember, there may be a Plan B: Contingency lawyers. With all the layoffs of lawyers lately, this could bring back their full employment as well as full disclosure and transparency of TARP and FED fundings in these crises. I can just hear those whistles blowing. Who knows, maybe a "smoking gun" will surface.
Dan Froomkin's WaPo White House Watch yesterday (3/17/09) has links to great political cartoons on the AIG bonuses, at:
Just scroll down to "Cartoon Watch" and link and laugh.
I read Professor Cunningham’s op-ed and I agree that it provides a useful and sober perspective on the bonus issue.
First, Cunningham is dismissive of legislative proposals to impose 100 percent taxes and the like.
Second, he notes that “moral outrage and public rebuke do not provide legal grounds for backing out of a contract.” Agreed.
Third, he observes that “[i]f the government is serious about finding a legitimate basis for abrogating these payments, officials must look to basic legal principles.”
Of course, the government is not serious about finding a legitimate basis for abrogating these payments. The government is serious about making sure that the “moral outrage and public rebuke” do not start turning in the direction of the government. Specifically, the government does not want the public to start asking questions like (1) why did the government agree to bail out AIG in the first place?; (2) why was the government unwilling to let AIG go into bankruptcy, which would have provided a clear legal basis not only for reducing or eliminating bonuses, but for requiring AIG shareholders and bondholders to share the losses as well?; (3) if the government thinks that the AIG bonuses are so bad, why didn’t it do something about them before making multibillion dollar payments to AIG?; (4) what is it that the government expected/wanted AIG to do with the taxpayer funds it received?; (5) if the government’s primary/sole purpose in bailing out AIG was to ensure that its CDOs were paid off, why didn’t the government pay off these obligations directly, instead of using AIG as a conduit?; and (6) if the government is so concerned about AIG bonuses, is it equally concerned about bonuses at the financial institutions, including foreign banks, which are the beneficiaries of the CDO payoffs financed by the US taxpayer?
One would think that the authors of this blog would have an interest in asking these fundamental questions. When the bailout was initially proposed, they viewed it as a hasty and ill-considered congressional abdication of authority and oversight in the face of a 9/11-type panic induced and encouraged by the executive. I wonder what has changed in the interim.
Fourth, Cunningham points out that one can only determine the validity and strength of the contractual obligations at issue here by reading each individual contract and considering the circumstances of each individual employee. Obviously this is correct. Certainly, if it has not done so already, AIG should review carefully the larger bonuses, particularly those paid to employees in the financial products division, to see if there are reasonable grounds for contesting them.
I am somewhat less comfortable with the idea of AIG being required by the federal government to “fly speck” each bonus contract with an eye toward finding any plausible grounds for backing out of its obligations. Sure, we all know that a lawyer can pick up virtually any contract and find ambiguities or issues that can be exploited for the benefit of his client. The more “creative” (to use Shag’s word) the lawyer is willing to be, the more he will find. (I take it, by the way, that this is the “good” type of creative lawyering, as opposed to the kind that should get you disbarred or land you in a war crimes tribunal.)
To have the President of the United States demand this kind of scrutiny be given to a discrete group of private contracts seems an awful lot like, say, the President directing the IRS to audit the tax returns of the bonus recipients. And we wouldn’t want that, would we?
Regardless, once the bonus issues is resolved and/or the public/media outrage burns out, I hope that people will start asking more probing and significant questions about the bailout.
mls "spins" Cunningham's OpEd in dizzying fashion. Perhaps others may read Cunningham differently. The concept of contracts against public policy is not etched in stone in the U.S. Constitution. This aspect of contract law has evolved based upon changing circumstances. Or does mls believe that the "Contract Clause" locked in the meaning of contract law upon ratification of the Constitution? Those relying upon simple "black letter" law may get red in the face with lawyerly creativity.
Precisely which public policy do you claim would make unenforceable an employment contract with a bonus provision?
Precisely which public policy do you claim would make unenforceable an employment contract with a bonus provision?
(1) why did the government agree to bail out AIG in the first place?; (2) why was the government unwilling to let AIG go into bankruptcy, which would have provided a clear legal basis not only for reducing or eliminating bonuses, but for requiring AIG shareholders and bondholders to share the losses as well?
While some of your other questions are reasonable, the answers to these two are well-known and related: bankruptcy is a default under the CDOs, meaning it would set off a chain reaction among holders world-wide. For better or for worse, the Treasury decided that it made more sense to avoid toppling the first domino.
Shag from Brookline:
ittle Lisa's bro, after a grueling trial, comes back with:
"If the government is acting as just another equity owner in AIG, then it should be liable for the contracts entered into by AIG."
How is the equity owner "liable" for these contracts?
Yet another example as to why anyone would be ill-served in seeking someone's DUI services. One of the major points to incorporation is to shield the owners from personal liability for claims against the company. If a certain someone doesn't know this, it is further evidence to support the proposition that this person had someone else take the bar exam for him. I mean, this is stuff so basic that any lawyer that said what he said above ought to be considered for bar sanctions and/or discipline.
I'm sure that if AIG wanted, and legitimate pressure was put on them to "want" it, AIG could have negotiated here too. It wasn't "sorry nothing we can do."
The problem here is that the culprits here would be more than glad to just walk away from the smoking wreckage with their million dollar "bonuses" ... what they don't want it to give those up. Given their position, they don't give a fig whether the company goes under or gets sanctions or whatever, they just want their money from the corpse ... first and before any other 'creditors' slice it up.
Unfortunately (and it's a well-kept secret), the incestuousness of ODMs and boards has them giving each other big slices of companies often at the expense of the company and the employees, and they put in these fat "bonuses" and "termination" agreements ("golden parachutes" or "golden handcuffs") so they are in line first to feast on the corpse ... and are immune from any responsibility and accountability because they'll get their millions even if terminated ... absent some outright fraud (and a willingness of their buddies in the ODM Society to hold them accountable for their failures).
Greenwald's comparison to union contracts (and yours by endorsement) is completely off-point. The argument for reducing benefits under the union contracts was that they represented a significant element of the automakers' costs and that the automakers would continue to suffer significant financial problems unless those obligations were reduced. I don't know anything about the automakers' financials, but that was the argument.
By contrast, the bonus money at stake in the case of AIG represents an insignificant fraction of the bailout money. Because the savings would be so small, provoking litigation and further reducing employee morale would probably be a net loss for the shareholders, including the taxpayers. The only reason not to pay these bonuses is a desire for retribution and revenge. And those do not make for sound business judgment.
I am somewhat less comfortable with the idea of AIG being required by the federal government to “fly speck” each bonus contract with an eye toward finding any plausible grounds for backing out of its obligations.
Do you seriously think that any valid (non-fraudulent) "bonus contract" can subsume the behaviour we've seen?!?!? As you know, a contract requires "performance". If it doesn't, it simply isn't a contract.
Because the savings would be so small, provoking litigation and further reducing employee morale would probably be a net loss for the shareholders, including the taxpayers....
"[F]urther reducing employee morale"?!?!? I don't get it. And neither does the American public. And also, $167M buys a lot of lawyers. Think of it as a "stimulus plan" for the mordant legal profession (which, as I see from the daily "Law.com" e-zine, is having its own layoffs).
... The only reason not to pay these bonuses is a desire for retribution and revenge. And those do not make for sound business judgment.
It's the "no spanking" rule brought to it's reductio ad absurdum. The reason not to pay the "bonuses" is that the bonuses were unwarranted under any rational interpretation of such (other that a "you scratch my back, I'll scratch yours" looting of the company as I commented above). "[P]erformance"?!?!? And "[R]etention"? If they are getting paid to be "retained", they damn well should stay retained (under an unbreakable 'contract'), and use their prodigious talents to good effect in reducing housekeeping expenses by cleaning the toilets for the next five years.
I see. $167 million to too much money when it comes to AIG bonuses, but not for the NEA in the so-called "Stimulus Plan"?
Little Lisa's bro looks like he might want to cash in on my theories as a free rider when Plan B goes into effect:
"Precisely which public policy do you claim would make unenforceable an employment contract with a bonus provision?"
Sorry, he'll have to come up with his own theories rather than ride coattails for free. Besides, I'm trying to encourage creativity, not bury it in a backpack of lies. Little Lisa's bro must be a heck of a poker player - NOT!
Let's harken back to the days of Pres. Ronald Reagan's exposure of welfare queens with their Cadillacs. Oh, how Ronnie would have railed against these AIG bonuses paid from corporate welfare funds. Why, Ronnie would have stopped dead in its tracks corporate welfare as we now know it. Let's see, how many Cadillacs could be purchased with $165 million? Speaking of free markets ....
The "populist anger" (said with a sneer half the time) has helped to start force into the open many things that even the Obama Administration apparently was wary of addressing (see pressure on Dodd etc.) IOW, it might have started with a tree, but the forest is coming into view.
To reference Arne's reply, it isn't just the company that is at fault here, their government enablers are too. This is an old story by now. Since Obama plays by "centrist" rules, he too will have to be kept an eye on.
The patient is not healed just because the bullet is removed. S/he is also not the same.
I'll tell you what makes my ass chew gum:
The possibility that Cassano at AIG is writing all these CDS with full knowledge that AIG cannot cover them AND with a pretty strong hunch--accurate it turns out--that AIG will be regarded by the USG to be "too big to fail."
What better way to privatize the gains and socialize the losses than to merge, merge & merge until you're "too big to fail"?
There was a time when we had anti-trust laws in this country....
Mark- thanks for the response. I take it that what you mean is that AIG’s bankruptcy would constitute a default event for purposes of contracts written in its Financial Products Division. I have not seen this emphasized as a reason for preventing AIG from going into bankruptcy. It does not appear to be mentioned in Liddy’s prepared testimony from yesterday. I did find it under the second bullet point on page 17 of AIG’s “Risk and Bankruptcy Report.” This comes after a long parade of horribles chiefly involving risks to AIG’s insurance businesses, particularly the idea that there would be a “run on the bank” in the life insurance industry.
There is, of course, an important distinction between bankruptcy as a technical default event and bankruptcy as an event that would cause massive panic and loss of investor confidence. I am not sure that the former is that big of a problem. Bankruptcy would give the counterparties the right to terminate their contracts, but this would not give them any leverage over the US government, which is where they have to look if they want their money. If the government is providing AIG financial assistance to liquidate its portfolio, but dictating the terms on which it can be obtained, I don’t know that it matters that much whether AIG is in bankruptcy (or receivership, which is another option) or not.
It is the latter which is repeatedly emphasized as the reason for bailing out AIG. But this is based on the assumption that a bankruptcy necessarily means an “uncontrolled failure,” as opposed to an orderly liquidation of AIG’s obligations, in which the government would provide financial assistance while still ensuring that there is some reasonable allocation of losses among the various interested parties.
In the current situation, the government has given AIG a huge amount of money, but there appears to be no mechanism to ensure that losses are shared by others, such as AIG shareholders, bondholders and counterparties. Understood properly, the bonus situation is just a small illustration of that much larger problem. For example, it was reported yesterday that of the bailout money is being used to compensate hedge funds that took out naked short positions in mortgage-backed securities. This would seem to be a much larger issue, which may get no attention because of all of the focus on the bonuses.
Perhaps I have not asked all the right questions, but I think that there are a lot of questions that need to be asked. I fully sympathize with the “populist outrage” over the bonuses, which is completely understandable. But I am wary that this outrage will be manipulated to distract from, rather than illuminate, the real issues here. As I have mentioned before, I believe that there needs to be a thorough and comprehensive investigation of the entire financial crisis.
As I understand the bankruptcy problem, it's the concern that credit markets would freeze up (more) because the loss of AIG's "insurance" would make the CDOs even less valuable than they are now in real terms.
Now, if the government were to guarantee AIG entirely, then you're right that there's no real difference between the current situation and bankruptcy. As I understand it, though, there are lots of people who continue to believe that many of these derivatives will eventually pay off. Thus, forestalling bankruptcy will in the long run be cheaper.
At least that's the theory.
"I am wary that this outrage will be manipulated to distract from, rather than illuminate, the real issues here."
Your first comment (and more probably) does just that.
Also, the outrage has led to further investigation that has been quite illuminating, including toward addressing broader issues (such as not giving out money w/o proper strings and full and open due diligence).
Just look at the discussion of contracts, taxation and bankruptcy. These go much beyond the issue of bonuses per se. We often have to focus on a point first before dealing with broader themes. It can be dangerous, granted, but it can be helpful too.
A friendship that can end never really began
Agen Judi Online Terpercaya