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March 16, 2009

Obama: Geithner Will Use "All Legal Means" to Clawback AIG Bonuses

This may be smart politics, as Obama realizes he has a "bailout backlash" problem brewing. In no small part thanks to his relentlessly crude populist demagoguery on the issue. Even Bill Kristol is urging the GOP to make hay with AIG.

And isnít this a moment for the GOP to separate itself from the Bush administration as well as the Obama administration, who together have been responsible for an incompetent and improvident bailout? Figuring out the right policy going forward with respect to toxic assets and the rest is, of course, a major intellectual task. But being on the side of a healthy populist reaction to the AIG situation is at least a good political start.

But isn't the issuance of government fiats to ostensibly private concerns actually, um, nationalization? Shouldn't the Confused One figure out if he's nationalizing the banks and AIG in the first place?

It seems nationalization in everything but name:

The Obama administration is looking for ways to recoup at least some of the $165 million American International Group, Inc. paid out in bonuses over the weekend, despite accepting billions in government aid to stay afloat, reports CBS News correspondent Peter Maer.

The White House continues to negotiate with AIG to bring any payments in line with the government's priorities, an administration official told CBS News.

President Barack Obama is scheduled to speak Monday morning on AIG while rolling out his plan to help small businesses. He's expected to voice anger over the bonuses and could elaborate on administration efforts to recover some of the money, reports Maer.

The administration official said that the bonuses "long been known about inside and outside AIG. But we didnít want to accept them.Ē

The White House is seeking what are described as "mechanisms" to recover money spent on bonuses, but the company insists some of the bonuses are part of legally binding contracts signed before the government's bailout.

The "any legal means" quote was tipped to me by Anti-Harkonen Freedom Fighter Geoff, coming from that Obama speech just given.

I'm not sure what to think about this. It does seem that AIG has had a rather bad year, so I'm not getting why people should be getting large bonuses. It depends, I guess, on who got the bonuses, and how that compares to normal bonuses. But in this kind of year, I'm having trouble imaging that bonuses are justified.

Whether justified or not, we're seeing creeping nationalization here. Or half-nationalization, where Obama gets the public to support huge subsidies for corporations, which in turn gives him the authority to order them about, and make them, de facto, additional vehicles of government policy.

Another View: from USAToday:

It's tempting to say, go ahead, abrogate the contracts from early last year, and let employees sue. See if they can find a jury that will side with them over losing their sweetheart deals, which even gave "retention" payments "to employees who are downsized."

The downside is that if the payments aren't made, employees could double their money by suing, and the company (now effectively the government as 80% owner) would have to pay their legal bills. The government also shouldn't break contracts lightly. But before we take the word of Treasury and AIG's CEO that this couldn't have been stopped, the contracts should be made public and two questions answered.

Y-Not does some quick math to determine the bonuses represent 0.1% of the bailout money AIG has received. So this may be a case of pennywise, pound foolish.

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posted by Ace at 11:54 AM

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