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Posted on Mar 18, 2009 in Across the US, Beltway Politics, Congress, Conservatism, Economy, Ideology, Issues, News, Spending

In Defense of AIG Bonuses

While I’m sure at present, the idea of defending American International Group (AIG) isn’t exactly the most popular on either the left or right. However this is one of those issues where I think passion has superseded common sense, and some perspective might fruitful.

A few points:

First, let’s remember that AIG never actually went into bankruptcy proceedings, instead allowing the United States government to become a majority shareholder in the company, taking ownership of 79.9% of their assets.

Look at this from the role of shareholder: would you want to have the company you’re invested in revoke contracts that were designed to keep your talent on board, during an especially difficult time? If you were in fact a shareholder, and saw that it had the potential to yield a return with the right people and incentive, I would hope you’d say yes.

The government claimed when they made this investment that they thought it was going to have a positive return on investment for the American people. How do they expect that to be the case when the people working at the company are having one of their biggest perks stripped from them?

Second, staying on the same topic, it’s important to remember that bankruptcy is one of the legal protections a business has to get themselves out of the potentially crippling contracts without having to go through a sea of red tape and individual legal proceedings.

Just as is the case with any company, AIG had the option to file bankruptcy, go into protection and remove these contracts. However, the United States felt that AIG was too big to fail, and decided that instead of letting them go bankrupt, they would give them the money they needed to continue doing what they thought was needed to become solid again.

Third, do people actually believe that AIG would be able to employ quality people without having the ability to give them something to sweeten things a bit? If you’re someone who actually understands the credit market and has the knowledge that could save AIG, odds are if you’re not receiving the right sort of benefits package, you’ll just going to go elsewhere (especially in this economy).

Those who orchestrated this deal both in New York and Washington have all worked for institutions like AIG at some point. I am quite confident that if they weren’t receiving bonuses when they were with those companies, they too would have gone elsewhere.

While the media has had a field day with this, I find it extremely troubling that the government is coming down so aggressively on AIG for a practice that involves bonuses that are renewed annually, yet is unwilling to speak out negatively against union contracts held by the auto industry that often yield more benefits, FOR LIFE, and yield no positive return for the company.

The government is creating a slippery slope here by now threatening to come in and take this bonus money back, particularly when they’re talking about tracking down the individuals who received the money.

The government has no place telling companies that they cant honor contracts that were established prior to their investment. If they want to do this, they’re going to have to write a new slate of contract law, or use their majority power to drive the company into bankruptcy. However, when you’re the United States government, odds are regard for the law is the last thing you’re paying attention to. Public opinion and approval rating, however, is another story.

This is going to get worse, I promise.

If you thought Sarbanes/Oxley was a business killer, wait until you see what extreme regulation they’re going to come up with to try and prevent the unknown in the future.