Despite rumors to the contrary, this country is still based on the rule of law – especially when the law favors a guy who has a "bonus" in excess of $6 Million dollars coming to him. By now almost everybody has certainly heard about the $165 Million of bonuses being paid to AIG execs. In a discussion on NPR this morning Renée Montagne asked why the government could not cancel the payments considering that they own 80% of AIG through their $170 Billion in bailouts. The answer was that the government can’t just rip up an existing contract because this is a country ruled by law. That is a nice answer that is true on the surface so long as you only give it a passing glance in near total darkness. Just since the beginning of this year Congress has passed a law allowing judges to rewrite the terms of an existing, legal mortgage contract. (I use that example not because it is better or worse than nullifying the payments of bonuses stipulated in a legal employment contract but because it is so similar to what we are saying can’t be done because we are a country ruled by law.)
The question remains, what does all this mean. We do not actually want to become a country where the government can come alter a private, legal agreement anytime they decide it would be a good idea to do so. Let’s see what we can learn from some of the options that have been proposed.
Tear Up the Contracts
If we want to admit that we are not a country that follows our own laws this would be the best course of action. That’s not going to happen because it runs contrary to our sensibilities as a nation. We may break our own laws, but we won’t admit it openly like this. A "bonus" that is guaranteed is no bonus, it’s a salary – one that these executives have proven they don’t deserve. A company that would offer or even accept an employee on such compensation terms should not be receiving a government bailout – in fact it should not even be in business.
Executives Voluntarily Forgo Their "Bonuses"
This would be the morally correct course of action for those who stand to receive their bonuses. This won’t happen because those who will receive the bonuses know that having AIG on their resume for 2008 may make them virtually unemployable for a while if they ever need another job. They also know that AIG is not financially sound even with the government money it has received so they can’t be assured that their current jobs won’t evaporate. They are going to take what they can get legally for as long as they can so that they can ride whatever storms may come their way.
Give Them Another Bailout
This one won’t sound popular on the surface – and it won’t happen either – but I have to throw it in here. This was an early idea of mine. The government should offer AIG another bailout that would be structured like so – The government gives AIG another $135 Million in bailout money on the condition that all those who stand to receive bonuses sign a contract that nullifies their bonuses – thus the company receive the benefit of an extra $300 Million while the taxpayers only foot another $135 Million of the bill. If AIG refuses the offer (which they would) it would prove that they don’t need the money as much as we were told to believe they were – just like the stories on NPR this morning about all the banks who are opting out of the TARP funds because of the "excessive" restrictions that Congress has written into the TARP legislation (plus those who want to opt out, but aren’t sure they can). The fact is that many of the businesses that are taking our government funny money are doing so because it’s being offered more than because they need it. (Why put yourself at a competitive disadvantage if you can stomach the attached strings?) I hope that Congress continues to make these funds more and more restrictive.
Reduce Their Salaries to $1 for 2009
I wish (but doubt) that the nation is not foolish enough to fall for this ploy. This is the most likely course of action because it is the one that AIG has proposed. Most of the people getting these bonuses should not even be employed based on their past performance. Reducing their salaries would be a generous act even if we were to also strip their bonuses. Besides, they may take a salary of $1 for the year, but they will also take a new bonuses next year after our outrage has died down (and they’ll weather our new outrage again if need be). Most of them are receiving bonuses that exceed the annual income of the majority of American households. They can live on the $1 salary comfortably if they want to because of the bonuses that that "punishment" would allow them to take.