I’m sure that by now, most of you have heard about AIG giving out $165 million in bonuses, and that has outraged many Americans, including many politicians because people don’t think that executives should be getting money for driving AIG into the ground and then receiving government bailout money.
Personally, I agree that they don’t deserve bonuses, especially after receiving government money.
The problem is, there’s really no way that I see the government LEGALLY stopping these bonuses. The government lent out money to AIG originally, without putting any requirements on the money not going toward bonuses, so the government has no right to step in and stop it now.
The bonuses are in the executives’ contracts, and thus should be paid out.
And the idea to tax the bonuses 100% is just plain wrong – that’s government intrusion and it crosses the line.
And Representative Barney Frank’s (D-MA) solution isn’t exactly legal either. He told CNN earlier today:
We own this company in effect, and we’re not asking that these bonuses be rescinded because we have lent money to the company. I believe we are saying as the owners of the company, we do not think we should be paying bonuses or should have paid bonuses to people who made mistakes, who were incompetent.
No, I don’t think the American people want a situation where Congress, whenever it feels a contract shouldn’t have been signed, passes a law to abrogate that past contract. That’s why I am saying we should assert our ownership rights.
I want to invalidate these contracts and say, look, we are the owners of this company. Yes, contracts were signed with you that I wish hadn’t been signed. But given how badly you performed, I want to argue that they did not perform under the contract.
The difference would be having a precedent that I don’t think the American people want, even if for this situation, we’d all like to see it different, where whenever Congress thinks a contract should be abrogated, it should be abrogated. So, I’m talking about a legislative abrogation of a contract. I’m talking about a lawsuit as an owner of the company [that wants to reward a] bonus, we ought to fine you for messing it up.
Well, I personally have a problem with Representative Frank’s plan. Sure, the government pumped billions of dollars into AIG, but they did it as a loan. We’re not talking about being the majority shareholder here – we’re not talking about buying stocks, we’re talking about a loan. Giving a company a loan gives Congress absolutely no ownership rights, and the fact that Barney Frank thinks that the loan gave the government “ownership,” even in the slightest, is honestly quite scary.
Think of it on a more personal level than if it were a company. Imagine that the government gave you a student loan. If they gave you a loan intended for school, but never put in writing that it had to be spent on school, and you spent the money on candy bars, you have that legal right. What Barney Frank wants to do is say, “The federal government is part owner of your life, and you are not allowed to buy candy bars.” Well, I would be fine with that if it had been in the original agreement, but it wasn’t. Now, what was in the original agreement was that the the government got “equity participant warrants” for 79.9% of AIG’s equity. For those of you who don’t know what equity warrants are, they’re a contract that says that the government has the option and right to own 79.9% of the AIG shares; however, the government is not exercising that option now. Until we exercise that option, the government has NO RIGHT to step in here.
If the government takes back any of this money and gets away with it, it sets a VERY dangerous precedent.
Now, Edward Liddy, the CEO of AIG, is encouraging employees to give back half of the bonus money. And if they do, that’s fine, because THEY are giving it up. But if the government takes the money simply because the executives dont’ deserve it, that would be a major government intrusion.
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