Legal Commentary

The AIG Question

By Big Tent Democrat

I've been listening in the background to the AIG hearing and I am not hearing enough questions like the ones Steven Pearlstein poses in the WaPo today (see also this NYTimes story on criticisms of AIG's payments to counterparties):

I suspect that when confronted with the prospect of a bankruptcy and a prolonged and public investigation, the sharpies in London and Connecticut might have been receptive to the idea of renegotiating those bonuses in favor of new contracts -- contracts that increased their base pay but tied their bonuses to success in reducing future taxpayer liabilities at AIG.

. . . A more hard-knuckled executive would have gone to the counterparties of those derivatives contracts and suggested that it would be a real shame if AIG were forced to file for bankruptcy, and offered some sort of workout.

[AIG] certainly could have been more upfront with [its] new owners -- the taxpayers -- about not only the bonuses but also the identity of the counterparties to those derivative contracts, who were the indirect beneficiaries of the government's bailout.

More . . .

To what degree is this the wishes of Obama, Geithner and Summers? Does it matter? It needs to stop now. Pearlstein writes:

[B]ecause of the bonus backlash, he has managed to put the entire financial rescue effort in political jeopardy.

To Pearlstein, that is a bad thing. I think it is a good thing because the Obama Administration has simply been awful. Its "plan," such as it is, is terrible. Bolder action has been needed for some time now. The silver lining in this AIG bonuses cloud is that the Obama Administration may have gotten the good hard shake it needed to wake up and get tough and bold regarding the financial crisis.

Speaking for me only

Full post as published by TalkLeft on March 18, 2009 (boomark / email).