AIG bonuses

The outrage continues.

Obama has directed Treasury to pursue any legal means for retrieving the money. One way would be to deduct it from the next AIG bailout payment of $30 billion.

Meanwhile, the New York Times' expert on the subject, Andrew Ross Sorkin, outlines "The Case for Bonuses at A.I.G." He says that everyone agrees that it is an outrage, but maybe we have to "swallow hard and pay up, partly for our own good."

He makes two arguments, one is about the "sanctity of contracts" and what it would do to other entities the government has contracts with, if it starts breaking them. I think others would argue that the government renegotiates contracts all the time -- but maybe only when it's written into the contract. I just don't know about that.

And then there's the argument, compelling to me, that if we hadn't bailed them out, their contracts would have been worthless. But that's a moral argument, not a legal one.

Sorkin's other, more novel, argument is the much discredited "retention of talent" one.

Here is the second, perhaps more sobering thought: A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.

A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave — the buzz on Wall Street is that some have, and more are ready to — they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.

So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.

And he adds that word on the street is that AIG execs are being heavily recruited by other financial institutions.

I guess it makes a certain kind of sense; but it would be hard to swallow.

Ralph