The futile arrogance of AIG outrage
posted at 8:51 am on March 17, 2009 by Ed Morrissey
The Barack Obama administration needed a new target for their populist rabblerousing, since they’ve apparently decided that Rush Limbaugh fights back and the oil companies don’t make enough of a profit to matter. The contractual bonus payouts at AIG came just at the right time for them to demonstrate moral outrage and get the people to aim their ire at a shared enemy. So far, few have figured out that the Obama administration enabled the bonus payouts:
A tidal wave of public outrage over bonus payments swamped American International Group yesterday. Hired guards stood watch outside the suburban Connecticut offices of AIG Financial Products, the division whose exotic derivatives brought the insurance giant to the brink of collapse last year. Inside, death threats and angry letters flooded e-mail inboxes. Irate callers lit up the phone lines. Senior managers submitted their resignations. Some employees didn’t show up at all.
“It’s a mob effect,” one senior executive said. “It’s putting people’s lives in danger.”
Politicians and the public spent yesterday demanding that AIG rescind payouts that they said rewarded recklessness and greed at a company being bailed out with $170 billion in taxpayer funds. But company officials contend that the uproar is scaring away the very employees who understand AIG Financial Products’ complex trades and who are trying to dismantle the division before it further endangers the world’s economy.
“It’s going to blow up,” said a senior Financial Products manager, who spoke on condition of anonymity because he was not authorized to speak for the company. “I have a horrible, horrible, horrible feeling that this is going to end badly.”
Maybe it’s an Obama stimulus. After all, someone has to pay all of those guards, answer those threatening phone calls, and screen the mail for anthrax. Just think how many jobs got saved by the White House turning AIG into a pariah — after dumping tens of billions of dollars into it.
The nasty little secret at the center of all the outrage is that the Obama administration could have stopped the bonuses by simply stopping the bailout. They could have forced AIG into bankruptcy, which would have voided the company’s contractual compensation obligations. Instead, the Obama administration chose to inject liquidity into AIG, following the lead of the Bush administration, which had done the same thing. That kept AIG’s doors open, and therefore kept its contractual obligations to its employees intact.
Now Obama is outrageously outraged, as Allahpundit put it yesterday, but over what? A company complying with its contractual obligations? AIG has no more right to abrogate those contracts than any other employer would with its union contracts. Whether or not the compensation agreements reflect wisdom and managerial brilliance, they exist — and as a matter of law, AIG has to honor the commitments. Screeching about the bonuses now is not just futile, but a demonstration of the arrogance involved in these bailouts. If the government wants to tear up all the contracts, it will have to nationalize AIG and get Congress to approve it.
In the future, we can avoid having taxpayer dollars go to Wall Street bonuses by not bailing out private companies with taxpayer dollars.
Update: Fausta has more, plus a poll.