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Posted by: Doug Henwood | March 17, 2009

Those AIG bonuses: how to break the contracts

So Obama tells Geithner to do something, anything, to make sure the gov can get back the AIG bonuses. Who knows if this is real or a pose? I’m now leaning towards the latter, especially after getting this from a friend who works at a hedge fund:

In the financial industry, reneging on contracts is, not quite SOP, but certainly not rare. From the company’s perspective, two things can happen. One, the employee eats the default. Free money. Two, he (more rarely, her) has a lawyer call you. At that point, you have the option of saying, oh yeh, my mistake, here’s the money. If you don’t, the employee may or may not sue you. If he does (and it is a tremendously risky proposition for him), you can always cave in right there, and you end up no worse than before.

Also, there is always the option of firing the guy for cause, which almost always negates the guaranteed payout. If you rummage through his emails, chances are you will find something that you can show the judge. Maybe he went shopping during company hours, sent an off-color joke, whatever.

I really don’t know whether they are bullshitting or just plain weak. My bet is the former.

Yeah, the sums involved are small change in the context of this enormous bailout, but still, what a symbol this is. Bonuses to retain a gang that drove the company into the ditch, and threaten to take the rest of us with them? Acting powerless despite an 80% ownership stake? Reluctant to stomp on toes and twist arms to remain “market friendly”? The excuses just aren’t credible anymore.

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Responses

  1. Obama’s pattern is to wait until there is an outcry of one kind or another and then go into campaigning mode, with poplulist rhetoric that he has no intention of following through on.

  2. You mean you’re even considering it might be real ? That’s progress.

  3. So is Obama just another slick right-wing populist or is he a push-over that doesn’t want to upset his wall-street buddies?

  4. I’m struck by all the sermonizing against anger over the AIG bonuses, in tandem usually with some reminder about the sanctity of contracts. Doug’s post about his hedgefund friend reminds us of something quite different–the law isn’t a level playing field in a class society. It’s just wishfulfillment on the part of these pttybrgeois intellectuals. Just wait until their newspapers go the way of the rest, and see how sacred those contracts of their are. Watch how fast they get angry.

  5. Just heard Obama saying this, with great emphasis and passion, on NPR’s hourly news flash:

    “We believe in free markets. We believe in capitalism. We believe in people getting rich.”

    This is a true faith-based politician.


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