Defending the AIG bonuses

Fire and flames continue to eat at AIG, and things only appear to be getting worse. Here we have a mammoth company who is losing money at enormous rates, and was nearing the verge of collapse. In fact, last quarter they posted a loss of $61.7 billion. The government, declaring them too big to fail, has bailed them out. The company has received more than $170 billion so far.

The latest scandal to nail the company concerns $165 million in bonuses they recently paid to 73 employees. Politicians on the right and left are busy faking expressing affected passionate outrage over this atrocity. Sen Grassley (R-IA) suggested that they either "resign or commit suicide", after the Japanese fashion. Majority leader Harry Reid boldly proclaimed "Recipients of these bonuses will not be able to keep all of their money". Sen Chuck Schumer (D-NY) quickly followed up with "If you don't return it on your own, we will do it for you". Many in Congress have suggested anywhere between a 80% and 100% on this bonus money in order to return it to the taxpayer.

I will now...Hold on a second...*dons his flame resistant Nomex flightsuit for protection*...There. I will now enter the fray and come out in support of the AIG bonuses. More precisely, I support their right to hand them out. How could I support these excesses paid by a company that was bailed out on the taxpayer dime? I'm glad you asked.

Take a walk with me.

Yes I'll wait for you to tie your shoes.

No, we can't stop for ice cream. Now then:

1) AIG was contractually obligated to pay out the bonuses. The bonuses that are being referred to are actually retention bonuses that were agreed to in 2008, before the bailout business had started, and based on the earnings of 2007. I say again: AIG is contractually obligated to pay out these bonuses. AIG writes contracts for much of it's living. Imagine the bad reputation they might get in the contracting business if they disregard contracts when they become inconvenient.

2) The language of the bailout protects these bonuses specifically. You know, the bill that congress didn't have time to read? It specifically states that these bonuses should be allowed. Interesting...Chris Dodd, who initially was just as "outraged" at the bonuses as every other Congressman, is actually the person responsible for the very language that allows them. To not give these bonuses out would not only break AIG's contracts, then, but the government's as well. Not a good reputation for the US government to have, since our treasury notes (you know, the one China is buying to finance our operations) are really just fancy contracts. After all, Congress has such an impressive record for honest, transparent, and reliable dealings. We wouldn't want that impugned, now would we?

3) The executives just might have actually earned them. AIG is "too big to fail", remember? They are also too big to have just one division. While the part of AIG that has been hemorraghing cash faster than a socialite in a shoe store is the one everyone is focused on, there are other portions of the company that are actually turning profits. I am not saying that each and every one of the recipients of said "bonuses" (which is a bit misleading, since these "bonuses" actually make up a substantial portion of their compensation) deserved them, per se. What I am saying is that we don't know who did or didn't earn them, and have no right to pass that judgement.

4) The alternative of taxing the bonuses back is even worse. As I write this, the House has already passed a measure that would allow them to tax the bonuses of AIG at a rate of 90%, virtually confiscating the bonuses. As a mitigating factor, the measure states that "The tax would apply to bonus payments made after Dec. 31, 2008, and it would cease when the U.S. government’s investment in the company fell below $5 billion." So, there are safeguards in place. It does, however, set a very dangerous precident. The government here is effectively circumventing contractual agreements that they do not agree with by using the IRS as a club. Brandishing this bludgeon and punishing behaviour for a small, select group of individuals or a specific company, they lay the groundwork for punishing other things the government doesn't agree with. You know, crazy behaviours like speaking out against Beloved Leader, participating in fringe extremist groups like the NRA or third-parties, or owning firearms. Insanity.

In summary, the government has said this: AIG has a lawful contract with some of its employees. We don't agree with the contract, so we're taking the money back, whether they like it or not.

Congress is voting itself more power each and every day. This may feel good right now. After all, they are acting in a very scary time.

Remember, though, what Benjamin Franklin once said: "They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." We would do good to remember it.