Allison Kilkenny: Unreported

“We Can’t Break Contracts!” = Total Bullshit

Posted in Economy by allisonkilkenny on March 18, 2009

broken-contract-300x199Politicians from both sides of the aisle are claiming that they can’t invalidate AIG’s staggering $165 million in bonuses because This is America And We Honor Contracts. On Sunday, Larry Summers, Obama’s director of National Economic Council, said that while the bonuses were outrageous, they represented contracts that could not be broken. Of course, Glenn Greenwald points out that the government had absolutely no qualms with breaking the United Autoworkers’ contracts with the Big Three during their bailout. 

And Summers’ claims are false because This is America and We Break Contracts All The Time. In fact, corporations and the government are super talented at wiggling out of contracts that prove too strenuous to honor. That’s why there are so many lawyers trolling around Washington – they’re there precisely for this occasion when lawmakers need to get out of an unsavory contract. 

Lawrence Cunningham, a professor at George Washington University Law School, spells out all the easy ways the government and/or AIG could get out of paying those bonuses:

1. If employees did not meet performance goals, AIG doesn’t have to pay them bonuses. Considering AIG was one of the worst offenders when it came to selling bundled subprime mortgages, it should be fairly easy to prove that AIG employees don’t deserve to be paid $165 million in bonuses.

2. If you were fired (or should have been fired,) AIG doesn’t have to pay you. Again, you breached your contract, so you’re shit out of luck.

3. If an employee was not absolutely candid about their shady practices, their bonuses can be withheld. Everyone at AIG knew their subprime mortgage dealings were shady, but that doesn’t excuse individual players from responsibility.

4. It’s impractical for AIG to shell out cash loaned to them by taxpayers. AIG does have the option to say, “Sorry, we can’t afford to do this right now.”

5. Sweetheart deals are illegal. Cronyism hurts not only shareholders, but in this case, taxpayers. 

And there are many more ways for AIG and the government to deny these bonuses. It’s a lack of will preventing that from happening. But the excuse that AIG and the government are somehow “obligated” to pay $165 million to AIG employees is complete and utter bullshit.

Update: Kevin, a reader, makes the excellent point that the We Don’t Break Contracts logic would mean California’s gay marriages should be made legal again. After all, This is America. We Honor Contracts, and what contract is more sacred than the vow of marriage?