Wednesday, March 18, 2009

More Details on the AIG Bonuses

NYS Attorney General Andrew Cuomo has some details on the AIG bonuses, and the situation is not getting any better for the Administration or AIG.

First, please understand my ire. The details of these bonus payments are not yet public. Some reports say they are for executives, others say that 400 employees are included in the bonus payments. Some reports say they are retention bonuses, others say they are performance bonuses. All reports say that AIG entered into these contractual obligations in early 2008. The details make a difference, and I am not in favor of simply abrogating those contracts, nor of creating a retroactive tax on them. Ex post facto and all that other legal mumbo jumbo. In our system of jurisprudence, you simply cannot do that, and any court would strike down such attempts. Arguing for 90% taxes and intentional breaches of contract makes for some very nice pandering to the public, but it is not going to work.

My anger is directed at this Administration and the Bush Administration. I cannot fathom how they gave AIG 170 billion dollars without knowing where the money was going to go, and how it was going to be used. And forget about conditioning the use of the money. They could have conditioned that money on renegotiated bonuses. Not a problem at all, and we can assume it would have worked, since no bailout money, no AIG, no bonuses at all.

Mr. Cuomo has released some facts about the payments. It seems that his office, an outsider in the transactions, was able to do what the Fed and Treasury was unable or unwilling to do - get the details.

According to Mr. Cuomo's letter to the House Committee on Financial Services:

1. The top recipient received more than $6.4 million;
2. The top seven bonus recipients received more than $4 million each;
3. The top ten bonus recipients received a combined $42 million;
4. 22 individuals received bonuses of $2 million or more, and combined they received more than $72 million;
5. 73 individuals received bonuses of $1 million or more; and
6. Eleven of the individuals who received "retention" bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million.

First the retention bonuses. My understanding is that the agreement is "stay with us another year, and at the end of the year we will pay you $X since you agreed to stay." If that is the case, AIG needs to pay those bonuses. The parties entered into an agreement, the employee did what hew as supposed to do, and is entitle to the payment. This really can't be an issue, and yes, it is a lousy agreement, AIG management is a bunch of irresponsible fools, etc. But hindsight is wonderful, those are agreements that were entered into over a year ago, and should be honored.

Mr. Cuomo has identified payments of approximately 1/2 the $165 million, but without the details, it is difficult to comment on the payments, except to remind everyone, again, that these are contracts that were entered into over a year ago.

Do you really want the government forcing companies to breach employment contracts? Think about your own employment or business situation. You enter into a major agreement, do everything the agreement calls for, and when it comes time to get paid, the company refuses to pay. Or the government enacts a new law that puts a 90% tax on that type of contract.

Not in our system of jurisprudence. We need competent government leaders, not proponents of illegal and unconstitutional "fixes."
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