Dollars & Sense: AIG, Labor, and the Sanctity of Contracts

[marmar]

AIG, Labor, and the Sanctity of Contracts
by Dollars and Sense


Today's main columnist in the New York Times business section, Andrew Ross Sorkin, echoes the comments Larry Summers made on TV this weekend with regard to the AIG bonuses and the sanctity of contracts. Sorkin quotes Obama: " isn't just a matter of dollars and cents. It's about our fundamental values." Sorkin goes on:

On that last issue, lawyers, Wall Street types and compensation consultants agree with the president. But from their point of view, the "fundamental value" in question here is the sanctity of contracts.

That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.

As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts.

Sorkin frets about whether government "abrogating contracts left and right" would lead companies to break contracts willy nilly. But it's more about the government, and companies, breaking contracts left, but not right. As Ali Frick points out at Think Progress, companies already seize opportunities to break inconvenient contracts—with unions. And the government, egged on by the right-wing, encouraged them to do so:

Yesterday on ABC's This Week, Larry Summers, head of President Obama's National Economic Council, called insurance giant AIG's plan to pay out $165 million in bonuses "outrageous" but insisted there was little the government could do about it. This despite the $170 billion in taxpayer funds that have been given to AIG. Summers cited the sanctity of contracts:

SUMMERS: We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.

Summers said that efforts by Treasury Secretary Tim Geithner had successfully "scaled back" the bonuses, but AIG chief Edward Liddy, defending the bonuses, told Geithner, "quite frankly, AIG's hands are tied." ..........(more)

The complete piece is at: http://www.dollarsandsense.org/blog/2009/03/aig-labor-and-sanctity-of-contracts.html

[Igel]

1. Somehow I get the impression people consider these facts to be contradictory.

'Summers said that efforts by Treasury Secretary Tim Geithner had successfully "scaled back" the bonuses, but AIG chief Edward Liddy, defending the bonuses, told Geithner, "quite frankly, AIG's hands are tied."'

Of course, there were two different bonus programs going, IIRC. One dealt entirely with executives, I think it was, could be scaled back, and was scaled back significantly. This reduced the total number of bonuses given. The other program wasn't scaled back and is the one (and only) discussed, applying to some 400 employees.