The Bigger Question Raised by AIG’s Bonuses

Andrew Ross Sorkin defends the AIG bonuses in today’s New York Times in the name of “the sanctity of contracts.” He asks, “If you think this economy is a mess right now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.” Sorkin raises the specter of a fundamental change in our economic climate and business culture, evoking an arbitrary, despotic, and perhaps kleptocratic future. How did this contract, and the ones that had AIG reportedly paying full value to counterparties like Deutsche Bank to satisfy collateral obligations on credit default swaps, become so sacred? Sorkin says this contract is different from others being renegotiated because “the auto industry unions are facing a similar issue—but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.” I’m glad Sorkin raised this, because in many ways the AIG bonus agreement is like a union ... (link)