I don't want to spend a lot of blogging space here on these AIG bonuses. There are other blogs on the 'net covering this in more detail, plus we have more important things to discuss on this one, like Creamy Tomato Soup and books about Jack Kirby. But Jef Peckham sent me the following and I thought it was worth a little more discussion…
Things I have learned about the AIG excessive seeming bonuses and the House bill to retroactively tax them at 90%:
(I note for the record that these do not come from places many on the left considered biased, like Fox, but mostly from NPR, who discussed them extensively on All Things Considered.)
1. The "evil" bonuses were retention bonuses, not performance bonuses. In short, the contracts stated "If you work for us until such-and-such date, we will give you a bonus of X dollars." It was an exclusivity contract, which I'm sure you understand, considering they have been a part of both Hollywood and Comic industries for years. It served to keep the clowns who caused much of the problems in place to help clean things up, operating on the theory that they were some of the only ones who even remotely understood them;
2. The pre-existing contracted bonuses were specifically allowed by the Stimulus Bill, on an amendment submitted by Sen. Chris Dodd. Dodd now claims he was 'forced' to put that amendment in the bill by the administration. (Why do I doubt this?);
3. Treasury Secretary Geithner says he only learned the "full extent of the bonuses" on March 10. (Note his careful parsing of words, much like Bill Clinton in his Lewinsky situation.) How long did he actually know about the bonuses?;
4. Problem 1 with the House Bill is that it could be considered a Bill of Attainder, forbidden by the Constitution. A bill of attainder quite simply is a law passed to unjustly deprive a person or small group of their property. What little I've heard is that this bill is directed at the AIG bonuses and its' effect on other bonuses not in the financial sector is limited, leading to the law of unintended consequences which I will explain shortly;
5. Problem 2 with the House Bill: the Constitution also forbids Ex Post Facto laws, literally "after the fact." That is exactly what this House tax bill is doing, going after the bonuses after they have been paid. From that standpoint, I would have to applaud the 87 Republicans who voted against the bill.
I mentioned the Law of Unintended Consequences. Here's my take on it. This law could make contracts with bonuses nearly worthless, as the recipient of the bonuses would get essentially nothing of that bonus. This could have a devastating effect on future contracts. Specifically, if the government is going to do this to the people who understand the financial system they are trying to fix, how many of those who know or understand the problems are going to be willing to work with the government to fix the problems? I suspect it wouldn't be very many.
Well, believe it or not, in all my years working in Hollywood and Comics, I've never had a real "exclusivity" contract. I've had hundreds of contracts, however, and I've encountered many instances of a company making a contract, then finding (or at least, trying to find) workable and maybe even legal ways of not paying off on it or modifying its terms later on, especially when the company gets into financial trouble. In this particular case, if the U.S. of A. hadn't stepped in to rescue AIG, most or all of those bonus clauses would have been worthless. They're only paying off because of the bailout. I wish contracts were sacred and I always got every dime mine said I was to get…but sometimes, I don't. And sometimes I only do when a lawyer working for me makes that happen.
Yeah, the AIG contracts were called "retention contracts" but there seems to be some debate out there over whether that's what they really were or even if all those people met the criteria of retention. And that's quite apart from the argument as to whether they should have been retained. Did those people, on whose watch the whole thing collapsed, really "understand the financial system they are trying to fix?" I dunno. But I'm skeptical of the claim that some seem to be making that since they burned down the house, they're the only ones who know how to rebuild it.
I mean, if you'd put me in charge of AIG, I could certainly have destroyed that company. That wouldn't mean I could undo my own destruction.
Why do you want to retain the services of folks you yourself call "clowns?" I mean, there may be a lovely Sondheim number there but we've already been suckered by a deal that held that if the company made astronomical profits, they kept 'em and if they had astronomical losses, we assumed 'em. I don't think it's wrong to be leery of the not-dissimilar premise that if these guys succeed, they have to be kept on because they're great at what they do…and if the company crashes and burns under their leadership, they have to be kept on because only they have the skills and knowledge to repair their own damage. What does an AIG executive have to do to warrant being fired if bringing the firm to total ruination is not enough?
Obviously, some erred big in not blocking these bonuses early on. If it was Senator Dodd, he'll deserve all the grief he'll undoubtedly get. I hope some of it is spread around amongst all who voted for the package. Right now, we're seeing a lot of Democrats trying to pin it all on Republicans and vice-versa, and I kinda doubt that either side has the cleanest of hands.
As I've suggested here, however, I'm not comfy with the constitutionality of deciding now to tax the bejeebers out of the bonuses. Others will decide if it is…and it sure wouldn't surprise me if for reasons you cite, they decide it isn't. I even suspect that some who voted for the tax fully expect it to be overturned but they figure (a) it's politically expedient at the moment and/or (b) the vote may just intimidate the AIG recipients to settle now for lesser amounts and cause others in line for similar bonuses to renegotiate them. I'm not sure those are good reasons (or that there ever are any) to vote for an unconstitutional bill. I also suspect that some or all of the 87 Republicans who voted against the new tax didn't have that in mind. Hearing some talk, they just seem to like the idea of government money being shovelled into private bank accounts…or just plain hate the concept of taxing wealthy people.
So, Jef, I probably concur with you on the constitutionality. I don't agree that only the AIG "clowns" (as you call them) can unscrew their own pooch. I also don't agree that this will destroy the concept of bonuses in contracts. There are first-year paralegals who can figure out ways around this one…ways to deliver bonus bucks under some other name, which will make them as sacrosanct as any payment ever is in any contract. I also expect there are financial experts who are already lining up to tackle the task of restabilizing AIG and other firms that bubbled their way into insolvency. There's probably a lot of money in being part of the cavalry that rides to the rescue on this one…and ways of making sure they actually get it.