As Americans are shaking their fists in the air over the payout of AIG bonuses, the Obama Administration took the nauseating position that it was unable to prevent the payment of bonuses and is unwilling to assume the legal risk of taking the money back. Wall Street plays hard ball and flips the bird at the President of the United States. While the arrogance is astonishing, one must ask if there is more to this story than meets the eye. There are no rogue actors in this deal.
Lawrence Summers, Economic Advisor to the President, said that we should all be concerned about breaking the contracts because of the implications on the overall system of law. Promises were made to be broken, Larry. Companies violate contracts every day of the week if it is the right thing to do for the business or if they need to find a way to crawl out of an obligation.
The question is what would it cost to fight the potential lawsuits that could result? In this case, if Treasury lawyers look carefully at the contracts, there are likely clauses that give the company the option to refuse a payout of bonuses if there was, for example, fraud, criminal activity, gross negligence, or actions that could be considered outside the scope of employment. Let's not forget the option to counterclaim in order to force concessions and settlement from AIG employees. After all, they were responsible for devastating the global economy. Just a thought, but maybe we could hang our hat on one of these concepts and flip the bird right back at AIG.
With all of this brilliance in Washington, how come Andrew Cuomo, the Attorney General of New York was the one to launch a subpoena questioning the payouts? If the global economy wasn't hanging by the AIG noose, my guess is there would be a tidy criminal case to pursue.
Where are these contracts, anyway? They should be put in the public domain so every lawyer in America can give an opinion about their meaning and validity. They can be redacted to protect the privacy of the individuals involved. I'll bet within two hours there would be an endless number of ideas on how to challenge the contracts. The rule of law works both ways and, no offense to the lawyers at Treasury, but they are not contentious litigators.
Then there is the theory that there is no way to "extract" the money back. Well, wire transfers can be reversed. In fact, the issuer almost always has the right to reverse a wire transfer within a certain number of days, especially if a mistake has been made. Someone please tell me this was a mistake! They should reverse the transfers and figure out the legal strategy later. The funds can always be released at a later date.
Are we to believe that AIG set up these payments without a single discussion with our fearless leaders at Treasury, The Federal Reserve Bank or the White House, until it was too late? No one even considered looking at the bonus issues prior to last week? I'll bet there was significant confidential dialogue at these agencies prior to the payout of bonuses and a decision was made that a strict interpretation of the law should trump all ethical considerations.
The fear that employees would leave AIG in droves if bonuses were not paid is just plain fantasy. According to a letter written by AIG to Tim Geithner, the relevant unit's books contain many transactions that are "difficult to understand and manage" as one reason "replacing key traders and risk managers would not be practical on a large scale." Where are they going to go? Who is going to give them a good recommendation after raping the global economy? Who would hire them? Come now, stop feeding us this Pablum.
If it is revealed that discussions on this issue took place with the watchers of AIG prior to the payout of bonuses, the incomprehensible lack of judgment on the part of administration officials would be nothing short of breathtaking. Discussions, analysis and decision making could have gotten delegated at a time when Treasury is overwhelmed, understaffed, and exhausted. However, while the big wigs were out making speeches and discussing the nuances of policy, the dark side found a way to prevail.
Let's roll up our sleeves and start thinking out of the box. We need brains and a baseball bat mentality here. We need meaningful leadership that is not afraid to stand up and say, "I'm mad as hell and I'm not going to take it anymore."