On The AIG Bonuses

Yesterday's Wall Street Journal's headline article focused on the apparent fury caused by the payment of contractually-required bonuses to AIG personnel in the unit which triggered its near-insolvency and subsequent purchase by the Federal government.

Everybody from US Senators and Representatives of both parties, to talk show hosts such as Bill O'Reilly and Sean Hannity decried the payment of these bonuses. Iowa Republican Senator Chuck Grassley, in perhaps the worst excess, called for Ed Liddy and his executive team to publicly apologize, then either resign or "commit suicide."

This sort of demagoguery is precisely why government intrusion into private companies, whether they be publicly- or privately-held, is to be avoided at all costs.

The clearest, most illuminating explanation of the situation was provided yesterday by former federal judge Andrew Napolitano on Fox News. The judge, a Fox News contributor, laid the blame on the very same federal government whose senior members are now outraged at what they have wrought.

Napolitano noted that the Fed, in its rush to save AIG, twice, simply took over the firm, fired its CEO and board, asked Ed Liddy to head the firm, filled the board with its own slate of directors, and put no effective constraints on the arrangement. In short, as Napolitano explained, the government did no due diligence, did not become aware of the contractually-required bonus payments, and, therefore, did not take necessary steps to void them.

By the way, this is yet another instance in which a proper Chapter 11 filing would have allowed AIG to continue operating, but given a court-appointed referee the power to void or alter contracts such as the ones requiring the recent payments of several hundred million dollars of bonuses.

It's all well and good for various pundits to declare that without the federal intervention, these bonuses wouldn't even be payable. But that is precisely the point. Bankruptcy would have precluded this embarrassing example of federal ineptitude.

Now that taxpayers own AIG, we are being subjected to the rantings of the third-rate, relatively-unintelligent people we elected to Congress and the executive branch. Having just spent more than a trillion dollars of our money, between the so-called stimulus bill and the 'regular' budget, these public trough-feeders now express outrage- outrage!- at the requirement that their hasty actions have necessitated, i.e., paying a few comparatively measly hundred million dollars to employees of AIG.

But, if spending a trillion dollars on largely pork barrel projects is a good thing, isn't putting a few hundred million dollars into the pockets of AIG employees good, too?

Where's the consistency in the logic that certain spending waste is okay, but other spending that goes directly to consumers is not?

But, as judge Napolitano noted, the feds have only themselves to blame. They rushed in and unwisely seized AIG. Now, their hasty and ill-conceived action is generating unwanted consequences.

Is it too much to hope that maybe government officials will use existing means for processing insolvent companies in the future, i.e., Chapter 11, and refrain from ham-handedly seizing private property without due process?