More on AIG’s bonus situation

2009/03/17

While reading the news this morning, I came across a story discussing the various solutions being proffered by our elected officials, and I was struck by a suggestion by Senator Chris Dodd (D-CT). Dodd is suggesting that the Congress enact a targeted tax that would affect only the individuals who received bonus payments from AIG, so that the government could recoup some of the expense of said bonuses. [1]

As mentioned yesterday, I’m not overly happy about these bonus payouts, but I’m not sure I’m comfortable with the Federal government passing punitive laws targeted at specific individuals. While I’m sure that Congress won’t go so far as to attaint these individuals and their relatives (this sort of thing being explicitly forbidden by the Constitution [2]), I do worry about the implications of allowing the Federal government to target punitive measures such as this to specific individuals under circumstances such as this. Keep in mind that while the actions of the executives at AIG are distasteful, there was nothing illegal about what they did; even if we later enact laws that prohibit these kinds of financial manipulations, these aforementioned executives would still be safe from prosecution. This being the case, are we comfortable with allowing the Federal government to pass laws that apply nominally punitive measures on specific individuals who have not been convicted of committing any crime? While it may not be strictly unconstitutional, this sort of practice skirts dangerously close to the kinds of abuses of power that monarchs repeated performed centuries ago (specifically, attainder, which requires neither trial nor even evidence of criminal activity). A law so framed might be legitimate in this very specific case, but what about the precedent that it sets for future actions? What happens the next time a company does something that is popularly distasteful? What if such targeted punitive measures are applied to individuals and situations that are politically distasteful? [3]

My concerns, as outlined yesterday, with the AIG situation has more to do with determining what to do in the future, as it seems likely that more financial institutions will be requesting (demanding?) Federal bailout money. WRT the situation at AIG, we already have courts that deal specifically with contractual matters, and while they generally try not to interfere to heavily in legitimately framed contracts, they can nullify specific provisions of such contracts, if necessary. There are also some questions WRT whether or not the bonus recipients were even involved in the poor decisions that precipitated AIG’s spectacular collapse. The problem here is one of transparency, and without such knowledge, it would be difficult to argue that bonus payments were unwarranted. As mentioned in the comments to yesterday’s post, the problem with contracturally guaranteed bonuses is a systemic one within the financial sector, but it would be wrong to arbitrarily punish the bonus recipeints at AIG if they did not engage in any reckless behavior, simply because we now find such bonuses to be distasteful. If the recipients were complicit in the reckless business practices prior to AIG’s collapse, then I’d rather see the situation resolved using the existing machinery that is already in place for handling such matters (contract law), than see the Federal government expand its reach in such a disturbing manner as Senator Dodd suggests. Its a dangerous precedent that he’s suggesting, and I’d rather not see it happen.

Notes:

[1]: CNN article, 17 March 2009: http://www.cnn.com/2009/POLITICS/03/17/aig.bonuses/index.html

[2]: Article I, Section 9, Clause 3: “No Bill of Attainder or ex post facto Law shall be passed.”

[3]: There are some Democrats who are suggesting just this sort of thing vis-a-vis suggesting that the administration should charge members of Bush II’s administration (and potentially, Bush II himself) with war crimes for their actions leading up to and during Gulf War II: http://www.democrats.com/special-prosecutor-for-bush-war-crimes

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