AIG Bonuses Redux

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4 Responses

  1. Ken Rhodes says:

    >>the country is no closer to a valid substantive answer to the fundamental question of whether the law of contracts requires paying the bonuses or recognizes an excuse from doing so.>>

    Perhaps if I were an attorney I wouldn’t be confused. But since I’m not, here goes …

    Doesn’t the same “law of contracts” require AIG to pay all its obligations in re the toxic credit default swaps it sold? So how come they could default on their CDS obligations, but not their bonuses? In my business career, I considered my contractual obligations to my clients who had prepaid for my products to be, perhaps less urgent than the salaries I paid my employees, but certainly more important than bonuses.

  2. It’s kind of an interesting question: A storm smashes your factory, on which basis you go into chapter 11, and short your creditors. May you also, on that basis, short the contractors you subsequently hired to haul away the storm debris and rebuild the factory? Establishing that you can might make it pretty hard to rebuild factories after storms…

  3. Ken Rhodes says:

    Brett wrote, in re my comment/question>>It’s kind of an interesting question: A storm smashes your factory, on which basis you go into chapter 11, and short your creditors. May you also, on that basis, short the contractors you subsequently hired to haul away the storm debris and rebuild the factory? Establishing that you can might make it pretty hard to rebuild factories after storms>>

    “Subsequently?” Try, instead, this analogy:

    Your business is going great guns, so you have a party. Your employees get drunk and careless, and burn down your factory, on which basis you go into chapter 11, and short your creditors. May you also, on that basis, short the employees you subsequently directed to haul away the debris and rebuild the factory? Not short them on their salary, mind you, but merely on the bonuses they were promised as a reward for the great year you had.

  4. I think it’s a factual question which analogy is more valid, and the truth varies from individual to individual in a fine grained manner. Which is why I find the notion of invalidating everybody’s contracts on the assumption of some kind of group guilt so troublesome.