Here's a different way of looking at the AIG bonus shame: do we want the United States government to make it a practice to breech legal contracts just because.... well, because of populist outrage? Put another way, do we want to live under the rule of a legal system where emotional pressure can abrogate contracts?
If it's so important not to pay this money out -- and indeed, that might be a political imperative -- then the executive branch of the government has two real options. One, it can force AIG into bankruptcy, which it's not prepared to do. My sense is that the government believes that the consequences of an AIG bankruptcy would be far more parlous for the economy than the consequences of paying the derivitative traders their ill-gotten bonuses. Or two, it can open the shame spigot.
Earlier, I wrote that AIG might want to force the traders to sue for their bonuses. That ought to be an internal company decision; the government shouldn't force people to sue to enforce their rights when those rights are unpopular.
Marc-
Simply put, right now, everyone is taking AIG's word for the premise that a breach is likely. As far as I can tell, no one outside AIG has even seen the contracts. The fact that AIG still feels it necessary to argue "talent retention" is interesting. Before we just conclude that the US is asking AIG to breach contracts, let's have the contracts reviewed by someone with no direct stake (or better yet the public). Remove any identifying information and/or trade secrets. Let's see if there is any language providing for certain contingencies. It is rare that incentive agreements are ironclad - employees leave, are fired, etc.... The old Reagan quip/adage "trust but verify" comes to mind. Except where AIG is concerned, I don't even trust yet.
Marc,
To keep in your mode of asking questions to which one does not have clear answers to: Is it not the case that the present majority shareholders of AIG, the United States Government (a wholly owned subsidiary of the American Public™) calling for an abrogation of contracts is now a de facto internal company debate?
Marc,
It is ironic that someone like you never defend the Rule of Law when members of United Auto workers were forced to renegotiate their contract with Auto Company to save them from collapse. Now that Wall street in involved you are suddenly defending rule of law...enough said.
Moral Hazard has been absent for too much of this bailout. This is finally an opportunity to apply it directly to the people responsible, while avoiding wider systemic damage. It's about time.
Secondly, efficient breach exists for contracts. Contracts are not sacred after all. If one party finds a contract onerous, they can get out by paying the other party's expectation damages, which would be the amount of benefit expected to be conferred minus the cost paid.
We live in a legal system where people hide their true motivations behind legal justification. We already live in a place where emotional pressure (sounds so effete, the word choice) has real leeway in the legal system.