Chaos at AIG

[Zkribbler]

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...

NY Atty Genl is looking to see if the bonuses were "fraudulent." I don't know what the news media means by that. I think Cuomo might actually be looking into "fraudulent transfers," which does not require actual fraud. These are merely transfers of assets by an insolvent company to someone else for less than market rate compensation. Such transactions can be undone.

IF AIG declares bankruptcy, courts can undo than market rate transactions for 1-year for insiders and 90-days for non-insiders.

[Darius871]

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...

You're right, it looks like the deadline to pay was Sunday and the money technically changed hands Friday, but declaring the contracts null and void retroactively could be coupled with an obligation to return the money to AIG. I was under the impression they'd only announced intention to honor the contracts and there were still a few days left to intervene, but the power of Congress remains the same.

In any event, they're right that the simplest and least assailable step at this point is a tax. Retroactive taxation (or "bait-and-switch" taxation as Scalia has put it) has been repeatedly upheld as constitutional, often unanimously, and I fail to see how this is any different. If anything it's more justifiable than those precedent cases since this time there are taxpayer dollars involved. Bam, judgment for the defendant.

[Zkribbler]

Writing the tax bill would be a bear. Are you going to tax all bonuses--even say, of a car salesman who sells a lot of cars?

[Darius871]

Writing the tax bill would be a bear. Are you going to tax all bonuses--even say, of a car salesman who sells a lot of cars?

Presumably just bonuses of executives from corporations that have received bailout funds from specified programs, though that would be a serious problem for healthy banks like US Bank which had TARP money effectively forced on them without asking for it. It might be enough to tailor the bill to AIG and AIG only.

[Jon Miller]

100% tax on the bonuses of the following businesses:

Seems pretty easy to me. Although I odn't think the government can handle it.

JM

[snoopy369]

I think the question is whether the government should have the right to do so. Even with this being pretty shady, these people likely agreed to stay at AIG - with a questionable job that is very difficult and probably not very long lasting with no real future prospects - based on the promise of this bonus (among other things). It's not their fault that the government is run by incompetent idiots who can't figure out where their asses are; and not necessarily appropriate to punish them.

If this were solely executive level bonuses, that might be different (and perhaps I have this wrong, and it is); but I got the idea this was actual workers as much - or more - than executives.

[Ramo]

I'm not terribly excited about this business, but almost half of the bonus money was in >$1 million chunks. So, probably not going to the run of the mill accountants.

And a tax seems to be the consensus.

[snoopy369]

I just don't like the precedent, although I suppose if it's executives I don't object to this specific instance. But of course I don't think the government should be bailing out companies in the first place, for among other reasons, this one...

[Japher]

I think the Spirit of the Law will take precedent here. It is clear that the TARP money wasn't to fatten already fat wallets for a poorly done job. The intent of the money was clear. While they didn't flat out ignore the spirit of the law they claim to have had their hands tied, the government can untie their hands now. So, everyone should be happy.

[Zkribbler]

So, everyone should be happy.

Not me. They give multi-million dollar bonuses for being incompetent. I was planning on getting a job there, knowing I could get rich in a hurry.

"Zkribbler, get down to the office NOW! Johnson's trying to cover for you, but he can't mess things up half as badly as you can! We need you, or we might actually make a profit this quarter!"

[DaShi]

So wait. Am I buying or selling?

[Riesstiu IV]

Buy! Buy! Buy!

[Imran Siddiqui]

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.

Of course the problem is Congressional action declaring the contracts null and void. AIG, in the absence of such Congressional action, had little choice... or be subject to massive lawsuits dealing with breach of contract, etc. The ball is (and has been) in Congress' court.

[Darius871]

Of course the problem is Congressional action declaring the contracts null and void. AIG, in the absence of such Congressional action, had little choice... or be subject to massive lawsuits dealing with breach of contract, etc. The ball is (and has been) in Congress' court.

Sure, but Ramo's post said the government feared a flurry of lawsuits (suggesting it didn't move the ball for that reason), not that AIG feared lawsuits, which it of course would have. I must have misunderstood what he meant.

[Ramo]

No, that's what I meant. I'm not familiar with the law here, but that's Treasury's line.

The official also said that Treasury has determined there is no way the government can actually extract the money from the individuals who already received the bonus payments. The government would face lawsuits with the potential of significant damage payouts and lawyer fees that could easily exceed the cost of the bonuses.

http://online.wsj.com/article/SB123721970101743003.html#mod=testMod