AIG And The Rule Of Law

Here's a different way of looking at the AIG bonus shame: do we want the United States government to make it a practice to breech legal contracts just because....  well, because of populist outrage? Put another way, do we want to live under the rule of a legal system where emotional pressure can abrogate contracts?

If it's so important not to pay this money out -- and indeed, that might be a political imperative -- then the executive branch of the government has two real options. One, it can force AIG into bankruptcy, which it's not prepared to do. My sense is that the government believes that the consequences of an AIG bankruptcy would be far more parlous for the economy than the consequences of paying the derivitative traders their ill-gotten bonuses.  Or two, it can open the shame spigot.

Earlier, I wrote that AIG might want to force the traders to sue for their bonuses. That ought to be an internal company decision; the government shouldn't force people to sue to enforce their rights when those rights are unpopular.