Chaos at AIG

[Kuciwalker]

Ugh. I'm not sure I like the government having that kind of power.

[snoopy369]

Indeed.

[Arrian]

The US government owns an 80% stake in AIG, does it not? So they should have a fair amount of control.

The problem with the contracts, as I understand it, is that the government should have negotiated up-front (refused to provide the bailout money until AIG agreed to slash bonuses and make any other changes the Feds wanted) like they did with the auto companies. Instead, they just handed out the money, and now they're scrambling around trying to figure out how to fix their mistake.

Not impressive.

-Arrian

[snoopy369]

Indeed ...

The problem is basically that they have contracts for these bonuses, isn't it? Thus AIG *must* pay them out.

[Arrian]

That's the argument. The counterargument is "but the UAW had a contract too!" Which sounds good, but the fact is that the UAW agreed in advance to renegotiate said contract in exchange for the bailout funds. With AIG, people are talking about simply breaking the contracts... and that isn't the same thing.

The gummint has egg on its face here.

-Arrian

[snoopy369]

Yep... and perhaps another part of the problem is the LACK of union here (gasp). UAW, at least, knows it has a stake in GM/Chrysler/Ford still existing as companies, and knew it needed to negotiate in order to survive. AIG doesn't have that here; they have a bunch of people none of which want to negotiate anything away - particularly given many of them are out of a job soon undoubtedly. If you were one of them, would YOU give up your bonus (assuming the money mattered to your near-term financial well being)? Not likely.

Clearly the government should have negotiated ahead of time. Or not bailed them out, that would have been better... sigh ...

[Darius871]

Clever, but I'd think that would be blatantly illegal.

The problem is basically that they have contracts for these bonuses, isn't it? Thus AIG *must* pay them out.

How so? The Contracts Clause of the Constitution was utterly eviscerated by the SCOTUS decades ago, so what possible legal impediment could step in the way of Congress in this instance? Congress can "legally" invalidate any pre-existing contract it damned well pleases, whether it's good policy or not. It's just a question of whether there's enough political will, and obviously there is here.

[Ramo]

From what I understand, the government fears an expensive ****storm of lawsuits.

[Jon Miller]

Rule of Law I think is obvious...

However, at times it has been raped so heavily that something different is needed, that is when you need a revolution.

JM

[Zkribbler]

Is bankruptcy an option now? That would take care of the contracts they claim force this after all. Is anyone calling for the resignation of Turbo Tax Geithner over his role in coming up with this plan?

I imagine all those contract provisions are now in the past. If these guys are at-will, then their contracts can be re-written for the coming year by management...and we taxpayers now own 80% of the company, so that's us. If they're for-cause employees, then we can fire their asses because they haven't been doing a good job, to put it mildly.

Like Obama, I too wonder what kind of provisions are in their contracts that would grant them bonuses. These yoyos have ruined their company, pulled down the economy of their nation, and help trigger a worldwide recession. How bad do you have to be to NOT get a bonus??

[Kuciwalker]

.

[snoopy369]

I think they were 'payroll' bonuses - ie, not performance based.

[Darius871]

From what I understand, the government fears an expensive ****storm of lawsuits.

But that's exactly my point: lawsuits on what basis?

If the execs sue AIG on their compensation contracts, AIG can file a motion to dismiss (or at worst a motion for summary judgment) simply noting that X congressional action declared said contracts null and void. Bam, no-brainer judgment for the defendant.

If the execs sue the government for impairing the obligations of their pre-existing compensation contracts, the government can file a motion to dismiss (or at worst a motion for summary judgment) simply noting SCOTUS mandates like Energy Reserves Group v. Kansas Power & Light (1983) entitling legislative invalidation of contracts to highly deferential rational basis review. Bam, no-brainer judgment for the defendant.

Granted, even a motion to dismiss costs money, but the reality is few plaintiff's attorneys would even take such dead-end cases in the first place, if any.

[Dinner]

It's moronic. Let the counterparties take their losses. Don't have the taxpayers fund it. Heck a lot of the counterparties (Buffet, Goldman execs) are Democrats. Why did the Repukes sign off on this stuff? They lack any real conservatism.

Actually the majority of the counter parties are European banks and insurance companies. That was one of the big reasons the Federal Reserve stepped in on September of last year because not doing so would have risked the international financial system.

[snoopy369]

AIG has already PAID these bonuses, right? So we're (again) talking about something that could have been? Congress doesn't have authority to require the bonuses be returned at this point, does it?

I hope...