Running Local

This Train of Thought Makes All Stops

We’re Losing Our Minds

Posted by Bob Kohm on March 17, 2009

Nothing can mess up a marriage like money problems; hell even Billy Joel has popularized that concept in Scenes From an Italian Restaurant. When money becomes an issue, everything else goes on the table– bitterness, greed, jealousy and the real killer, irrationality.

In the marriage between our government and the American people, money has become an issue, and irrationality is raising its head above the swirling currents of anger, frustration, and fear.

Take, for instance, this week’s explosion of craziness over the A.I.G. bonus payments. Yes, on the surface it is maddening– the American taxpayers are floating A.I.G. and they’re busy shipping TARP money overseas or handing it out in bonus checks to the idiots who were the engineers and mechanics of the train wreck that A.I.G has become. While many families struggle through layoffs and while houses are being taken by the banks at rates never before seen, the rich are getting richer; anybody can understand the anger that would generate. The problem is that we’re getting lost in that anger and risk doing serious, lasting damage to our nation as a result of it.

In today’s New York Times, Andrew Ross Sorkin charts a personally dangerous course in his Dealbook column under the headline The Case for Paying Out Bonuses at A.I.G. There’s a case for paying out these bonuses? Really? The man must be insane and be courting a Rushdie-esque fatwa called down upon his head by Imam John Q. Public. In this environment who could ever support dishing out more money to the boobs at A.I.G.?

A very prescient man, that’s who.

The contract is the fundamental building block upon which American business is founded. No matter how onerous a deal may turn out to be in hindsight, a contract is a contract and must be honored short of bankruptcy. Yes, you can always ask the other party to renegotiate a contract for the mutual good, but you can not simply walk away from the provisions of a contract because one party just doesn’t like it anymore– at least not without a lawsuit that will see the walker getting nailed for doing so and ordered to perform. Without that surety, there is no such thing as a credit market– a loan or credit agreement is a contract, of course, assuring the lender that the borrower will repay the loan with interest or else forfeit some valuable property in lieu of cash payment. The contract is as close to a sacred concept as exists in the profane world of business and economics. It’s preservation is paramount to our very existence, and one of the key roles of government is providing the tools in the form of the legal system to enforce and ensure contracts.

And now, out of anger, we’re demanding that the government set a precedent that will hopelessly erode the sanctity of the contract because, well, we’re damned angry and have a right to be. The bonuses that are the object of so much ire right now weren’t concocted last week as a boondoggle to enrich a few financiers; they were the result of employment contracts signed before the wheels came off of the economy between A.I.G. and its employees. Whether or not those employees deserve the bonuses in light of all that’s happened, whether or not we want taxpayer money funding those bonuses, whether or not we’re out of our minds with anger, these bonus payouts are mandated by valid contracts that have to be honored simply because they are valid contracts. To have no less an entity than the Federal Government try to abrogate these contracts because the American taxpayer is angry… well, that’s not an avenue any sane person would seek to go down, is it? The slippery slope is an old argument, but precedent is also one of the underpinnings of our society. If the government can step in and simply toss out the provisions of a series of valid contracts because the Congress doesn’t like them, what is the point of the entire system?

The counterargument most offered by bloggers and commentators to this line of thought– that simply tossing out valid contracts is rank idiocy that will be killed by the Courts as it should be– is that A.I.G. is now largely owned by the taxpayers anyway and would have gone bankrupt had the government not stepped in… and bankruptcy is the ultimate voider of contracts. All well and good, save one tiny flaw– that damnable phrase, “would have”. Yes, the government stepped in and the American taxpayer got the bill… to prevent A.I.G. from going into bankruptcy. We stopped A.I.G. from going bankrupt and collapsing because their existence, as twisted as this might seem, is integral at this point to the economic recovery. When we made that choice– to prevent A.I.G. from going bankrupt by, essentially, buying the company, we bought not only its assets but its liabilities and commitments, as well. We are now a party to the employment contracts that mandate these “retention bonuses”, and as a responsible party that is interested more in the overall health and resurgence of our national economy rather than the sideshow BS of the A.I.G. bonus flap, we must hold back our bile and sign the damned checks. To not do so is unthinkable and, should this hit the courts some day, illegal. You don’t have to have stayed in a Holiday Inn Express last night to see that, even if like me you hate the concept of paying out this money.

Ditto the ire over A.I.G. taking bailout money and paying it to European and Asian banks rather than keeping it here int he States. A.I.G. owed debts to those institutions and needed to satisfy them under contractual obligation. We cannot give A.I.G. money with which to save itself and thus prop up our economy and then tell them that they can’t use it to satisfy their liabilities– what else would we be giving it to them for but to kill bad debts and satisfy other liabilities so that it may continue to function as a business entity?

Now, that doesn’t mean that we can’t ask for the money back, that we can’t publicly hammer the employees getting these bonuses in an attempt to shame them into not accepting them… but if they say no and want the money owed them, then it’s up to us to perform up to the terms of the contract.

There are no popular solutions to a financial crisis as deep as the one we’re in– the issues are too complex for the average person, myself included, to understand every intricacy and every interconnection. Moves that make sense may be counter-intuitive, and certainly may be the cause of immediate anger from the population. What me must use as our guide in determining sentiment is a baseline fundamental of common sense– do we want to live with contracts providing no surety? Do we want our employers to unilaterally change our contracts? Do we enjoy seeing products on the shelves of our stores, being able to borrow to buy a home or a car or a boat? Do we want to be sure that when we contract out a job that he job will be done? Of course to all of those, so, too, of course to paying out the bonuses contracted for. We cannot have one without the other.

Money can break up a marriage, but the one between our government and ourselves must be saved. We all need to take a deep breath, accept that there will be things that must be done that might not feel great up front but that must be done, noentheless, to get everyone back safe in their beds at the end of this long, dark day.

Advertisements

One Response to “We’re Losing Our Minds”

  1. Chancellor said

    Bob,

    All of your points are good ones. For a change, I think we’re in total agreement. Gosh, I hope you were sitting down. 😉

    To add further fuel to the fire, other important points to be considered: the person running day to day operations at AIG is none other than the CEO the largest shareholder – the US government – installed. This is no trivial point – if the feds will take over other financial institutions (Citi, anyone?), but won’t let a CEO run the company without facile interference from dimwits in both parties, they’re not likely to find anyone who can competently run these companies. And while I’m less than convinced the present path of bailing out zombie financial institutions is for the best, it will certainly be turn into a “fracasso epico” with substandard leadership.

    Additionally, these bonuses were guaranteed not only by contract, but further by the Stimulus Bill, via an amendment authored by Sen. Christopher Dodd – D, Conn. In fact, the amendment is known and has been called the “Dodd Amendment”. The amendment limits future executive compensation, but clearly states that contractual agreements in place before Feb. 11, 2009 will be honored. Since I’m admittedly not a fan of Sen. Dodd, I’ll truly enjoy watching him backpedal on this issue faster than Deion Sanders from a real football tackle.

    On top of it all, both Congress and the Administration knew about the retention payment program – AIG disclosed it almost a year ago (see http://www.washingtonpost.com/wp-dyn/content/article/2009/03/16/AR2009031602961.html?hpid=topnews). No conclusion that can be readily drawn is too palatable – either all parties knew about this and believed it “wouldn’t be a big deal”, or simply decided to let it happen and use it as a political pinata, or, worse yet, had the information and had no clue it was going to happen. While I must admit that complete ignorance amongst the idiot Senators cavorting amidst the cameras would surprise me not in the least, I’d be very surprised and disappointed that the present administration would miss something like this.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: