AIG Bonuses: It's A Contract, Stupid!

The days of a contract being someone's good name and a handshake are long gone. In today's complex and litigious society, the legal and binding cement that keeps two parties honest is the contract.

Like it or not, the people at AIG, that received those retention bonuses, got them because they had a contract. That contract was a legal agreement between AIG and themselves. Those contracts were done as part of conducting normal business activities and were negotiated in good faith between AIG and each of those employees. The fact that AIG received bailout funding from the Federal Government can't negate those contracts because they were written before AIG accepted that funding. Anyway, the acceptance of Federal bailout money was a contract between AIG and our government and was totally independent of those retention bonus contracts.

Our Congress knew this and knew that they couldn't override those legal documents by, somehow, passing a law that would retroactively negate them. That would definitely be unconstitutional. So, the Democrats in Congress and some obliging Republicans decided to do an end-around by passing legislation that would penalize the recipients of those bonuses with a 90 percent, retroactively applied tax rate. Even so, that action may be unconstitutional, too, because it may violate Article I, Section 9, of our Constitution by passing legislation that could be defined as a "bill of attainder". A "bill of attainder" is the passage of any law that would specifically target and punish a single person or select group of people. Whether or not our Congress' actions are unconstitutional, will depend on whether or not the focus of yesterday's legislation is too limited in its scope.

This could have all been avoided if Chapter 11 bankruptcy had been allowed to happen. In that case, all those bonus contracts would have been null and void under our existing bankruptcy laws. But, if you recall, the bailout was needed because AIG was another one of those companies that was too big to fail. That was our government's choice in this whole mess. By doing so, the Federal government allowed all the preexisting AIG contracts to stand. Now, it appears we want to pick and choose those things we don't like about AIG's business and we want to do so retroactively.

AIG isn't at fault here. All this anger is totally misplaced. We, as the people who elected our current representatives to govern us, are at fault. Our representatives were too stupid to think through all the consequences of bailing out this company and now they want to change the rules to divert attention away from their own stupidity. When our government "unconditionally" gave money to AIG, they did so in good faith and AIG accepted it without a lot of detailed strings attached. That was our fault.

What was done, yesterday, by our Congress, shows what little regard our representatives have when it comes to the rule of law and the importance of established, legal contracts. And, this isn't the first time. Right now, there is a mortgage "cram down" bill working it's way through Congress that would totally obliterate mortgage contracts by allowing a Federal Judge to set new contractual terms and that would, in effect, only benefit the homeowner and not the lender.

In a similar attempt to thwart an international agreement, the Democrats in Congress ignored the contractual commitments of NAFTA and have now blocked Mexican trucks from entering our country to bring in Mexican goods for sale. As a result of that action, we have had trade tariffs imposed on 90 U.S. goods and products being exported to Mexico (See Full Story).

Another form of contract that was dissolved, and by Obama himself, occurred when he declared that companies receiving bailout funds must restrict their executive pay to a $500,000 ceiling. I don't know about you, but when I went to work for a company, they made an offer of a specific salary and I accepted that fact. That was a binding contract under the labor laws of this country. But, now, Mr. Obama seems to think employment contracts mean nothing anymore.

How many more contracts is this government going to void? Obama and the Democrats talk about the importance of the rule of law when it comes to protecting the terrorists at Guantanamo; but, they seem to ignore the same rule of law when it comes to protecting Americans in America. Are we now moving to some form of a lawless dictatorship or a communist-like Politburo? It's sure starting to look that way!