Rule of Law and Sancitity of Contracts

Glenn Greenwald notes the absurdity of the claim that AIG’s outrageous bonuses must be paid because we are a nation of laws.

Apparently, the supreme sanctity of employment contracts applies only to some types of employees but not others. Either way, the Obama administration’s claim that nothing could be done about the AIG bonuses because AIG has solid, sacred contractual commitments to pay them is, for so many reasons, absurd on its face.

…

To use Larry Summer’s eloquent phrase (perversely deployed to justify the AIG bonus payments)¹: if “we are a country of law,” we would probably do something about these severe violations of law that are right in front of our faces, particularly since we all know exactly who the lawbreakers are.  

Apparently, this “we are a country of law” concept means that hundreds of millions of dollars in taxpayer money must be transferred to the AIG executives who virtually destroyed the financial system, but it does not mean that something must be done when high government officials get caught plainly breaking the law. What an oddly selective application of the “rule of law” this is.

…In comments, EJ has an excellent suggestion as to how the Government can enable AIG not to pay these bonsues:
Couldn’t Congress just give poor, well-meaning AIG immunity from lawsuits? Novel idea, huh?

That would certainly solve the problem.  If Congress (with Obama’s support) was willing to immunize lawbreaking telecoms from lawsuits brought by their illegally-spied-upon customers, shouldn’t Congress be willing to immunize AIG from bonus-seeking lawsuits brought by their executives who helped spawn the financial crisis?

[From The sanctity of AIG’s contracts – Glenn Greenwald – Salon.com]

Yes we are a nation of law, but we are also a nation of lawyers, and since when is a business contract sacrosanct? Just ask a labor union about renegotiating contracts.

such as:

Associated Press, February 18, 2009:

The United Auto Workers’ deal with Detroit’s three automakers limits overtime, changes work rules, cuts lump-sum cash bonuses and gets rid of cost-of-living pay raises to help reduce the companies’ labor costs, people briefed on the agreement said today. The UAW announced Tuesday that it reached the tentative agreement with General Motors Corp., Chrysler LLC and Ford Motor Co. over contract concessions, as GM and Chrysler sent plans to the Treasury Department asking for a total of $39 billion in government financing to help them survive.

Concessions with the union are a condition of the $17.4 billion in government loans that the automakers have received so far.

or, for example, a concession that has nothing to do with bailouts:

Members of the San Francisco Chronicle’s largest union have agreed to contract concessions that parent company Hearst Corp says are essential to keeping the newspaper open.

Members of the California Media Workers Guild voted by a 10-1 margin to approve concessions that would allow the Chronicle to cut at least 150 union jobs and eliminate various benefits and rights, according to a statement on the union’s website posted on Saturday evening.

New York-based Hearst had threatened to close the paper unless it could secure immediate concessions. The company also says that it may close the Seattle Post-Intelligencer newspaper, or possibly take it online only with a much smaller staff. A decision may come next week.

[From San Francisco Chronicle union OKs concessions | Reuters ]

So please, no bullshit about AIG bonuses being immune to renegotiation. I don’t believe it, and neither should you.

Obama can read between the lines too:

President Obama vowed to try to stop the faltering insurance giant American International Group from paying out hundreds of millions of dollars in bonuses to executives, as the administration scrambled to avert a populist backlash against banks and Wall Street that could complicate Mr. Obama’s economic recovery agenda.

“In the last six months, A.I.G. has received substantial sums from the U.S. Treasury,” Mr. Obama said. He added that he had asked Treasury Secretary Timothy F. Geithner “to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole.”

In strongly-worded remarks delivered in the White House East Room before small business owners, Mr. Obama called A.I.G. “a corporation that finds itself in financial distress due to recklessness and greed.”

“Under these circumstances, it’s hard to understand how derivative traders at A.I.G. warranted any bonuses at all, much less $165 million in extra pay,” Mr. Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

White House officials said that the administration is not looking to take A.I.G. to court to stop the company from paying out the bonuses. But they said the Treasury Department would be trying to figure out what they can do to block A.I.G. from making the payments within the legal confines of A.I.G.’s contractual obligations to the

[click to continue reading Obama Orders Treasury Chief to Try to Block A.I.G. Bonuses – NYTimes.com]

Footnotes:

1. 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. [↩]