Rule 11 comes into play when they have to decide whether to present a defense. Maybe they have one that passes muster and maybe they don’t, but its an issue. Of course, the government could pay nothing and then just throw themselves on the mercy of the court, but really what is the point in that? I would also note that even a valid defense can still be in violation of Rule 11 if your intent is bad. the intent here is questionable to say the least.

This is mob mentality, pure and simple. These deals were made before the bailout was even on the horizon, and a company that doesn’t honor its deals is in serious trouble after a while.

The company I work for has several massive loans from well-known lenders. In its contracts, it has a clause that the banks have a right to review our conduct in any financial dispute, to see if we did right by our alleged creditors or debtors. If they don’t like our conduct, however legal it might be, they can take away our loans and basically sink the company.

If we tried anything this shady, the banks would throw us out on our asses. A deal is a deal, they would say. AIG made a deal with these people and those of us who bought them out should honor it. Don’t like it? Then don’t bail these companies out in the first place (which, all told, is a better solution anyway).

And if this is the behavior of the government now, what will happen if AIG needs to make other “deals.” Large businesses won’t feel like they could trust them, which will, at the very least, be priced into the deals they offer. So again, Obama administration’s economic illiteracy comes through.

I’ve worked at a public company for more than ten years now. My bonus is based largely on the financial performance of the company and is not guaranteed, nor locked in. It goes up and down with the company’s fortunes. It’s never been zero, but then the company’s not lost money in any of the years I’ve work here. I’ve always thought the company to be reasonably well managed. (BTW, salaries are frozen this year due to forecasted financial results due to general economy conditions–no word yet on whether bonuses will be paid but they probably won’t be big if they are.)

At a minimum management at this little company knows enough not to lock bonuses in contractually no matter how poorly the company performs.

“Best and the brightest” My behind!

Perhaps we don’t really need the best and the brightest. If this is what they serve up, give me mediocre, honest, and commonsensical any day. For too long we’ve had a bunch of people operating in business and government who were born on third and thought they hit a home run.

Now, they squeal and whine like pigs when their entitlements are challenged. Perhaps some wholesale taken-down-a-few-notches needs to occur so some more realistic perspectives can take hold.

This depends entirely on the circumstances of the bonus situation. If a stockbroker brings in 20million of new business, vs. an industry average of 5million, he will get a bonus regardless of company profitability.

The same thing may exist if a trader exceeds his profit targets and volatility goals. Now, if your speaking of the executives (vs. the line employees), it should be based on the profitability of the entire company. But if you don’t give bonuses to highly performing employees, regardless of the company’s profitability, they will leave — and in this industry that is very easy to do and carry your customers with you.

There’s no way Rule 11 sanctions are in play here. If AIG and the Government refuse to pay, the AIG employees’ only remedy is to sue for damages. Even if the Government and AIG have no defense against the lawsuit whatsoever, sanctions wouldn’t be awarded–the court would just calculate and award damages.

Sanctions only come into play in the very unlikely event that the Gov’t actually tries to put forward a frivolous defense, and even then a lot of other things have to go wrong in order for a court to actually sanction the attorneys. (The attys would have to fail to take advantage of the safe harbor, etc.)

On the public policy point:

We might understand the limitations on executive compensation under TARP as a statement of public policy, to the effect that bailout funds should be used to shore up the solvency of these financial institutions for the benefit of the economy as a whole, and should not be diverted to executives in the form of humongous bonuses. While AIG is not technically receiving TARP funds, the public policy considerations are the same.