Monday, March 16, 2009

Much Ado About Nothing?

Paul Hogan, commenting on the AIG bonus 'scandal' and why it -- perish the thought -- might be nothing more than political grandstanding:
I think people may be jumping to conclusions about this situation. It is pretty common for executive employment contracts to contain provisions entitling the employee to a yearly lump sum "bonus" payment on the condition that the person is still employed as of a certain date. Although it is referred to as a bonus, it is more like a salary payment in the sense that it is contractually guaranteed, non-discretionary, and not based on performance benchmarks. If that is the case for these bonuses, then this is much different than the 11th hour discretionary bonuses that John Thain gave out to Merrill employees.

The relevant question is whether the government has any authority unilaterally alter the contracts of employees at AIG, whether through TARP or otherwise. From what I have read, it does not sound like they do have any such authority, but are trying to come up with a way to stop these payments regardless.

Another question that I would like to know the answer to is what authority does Andrew Cuomo have to subpoena this information? Does the AG of a state have the right to know the salaries of any employee working for a company in that state? The fact that AIG received bailout money from the federal government is a federal matter and does not increase Cuomo's jurisdiction. And I have not seen any evidence that these contracts are fradulent, especially since it appears that they were entered into before shit hit the fan, and even if there is a slight possibility that they are fraudelent, the government cannot just subpeona information based on naked suspsicions and accusations.

We might not like the fact that these idiots at AIG are still getting paid, but situations like this might just be inevitable when the government hastily hands over billions of dollars. Giving a company enough money to pay off all of its creditors means that they will have the money to pay off some creditors that we would rather them not pay off. But a company can't just pick and choose who to pay and who not to pay without getting sued.

Regardless, I don't like the idea of the government rescinding contracts without any authority to do so or prosecutors abusing their subpeona power. It might not bother you when executives AIG are on the receiving end, but we have seen what can happen when prosecutors are given carte blanche to run wild (e.g. Kenneth Star).

The real shame is that this furor over 100 million in bonuses (which amounts to about .06% of the bailout money that AIG has received) has drawn attention away from much more important issues such as the $13 BILLION that Goldman Sachs has received from AIG post-bailout, or the broader discussion of whether we need to nationalize the banks.