Congress Has No Business Taxing AIG Bonuses

The Obama administration and congress approved the bill that allowed for the awarding of the demonized bonus payouts. Claiming that they unaware of the bonus clauses, as President Obama has done, proves only that he and his cabinet are lying or are incapable of doing their jobs by not having read what they signed; or both. Once they signed the paperwork that permitted the payments, the deal was done. The buck stops with this one not with AIG management and employees but at the White House and with Congress.

According to employee contracts that these bonus recipients have with AIG they are entitled to their additional funds in the form of the payments they received. They got them for performing their jobs. That's what bonus's are for - incentives and rewards.

The knee-jerk reaction Congress is due to the rising chorus of public discontent with the way government is handling the economic crisis in general. The bonus issue is merely a symptom of a much larger problem, yet they garnered disproportionate attention. This reaction in punishing employees without due process is simply wrong. Congress should realize that the horses they are seeking have long left the stable; beating the stable boys won't bring them back.

It is disturbing that in the seat of world capitalism that the government can rush through legislation specifically designed to intervene in pre-agreed business procedures using the IRS as their attack dog. It reeks of the way things were done in Communist Russia. The concept behind this methodology is worrying.

It's a pity that Congress hasn't been as quick in pursuing more pressing and critical matters such as, for instance, voting to halt their automatic pay-raise process which quietly slipped by last week. A more appropriate response to the bonus issue should have been a claw-back of the funds involved, in the form of rebate check from AIG, not the public humiliation of these employees in little more than a cheap PR stunt. Cheap for Congress that is.

One hopes that this reactive behavior is not indicative of things to come although having seen this once it does not bode well for the future. Note to Congress; we progress in business through the use of incentives, not by potentially bankrupting those who have done their jobs.

In a final note it is worth mentioning what the Government has been at pains to not share with the great unwashed (you and I) and that is the critical importance of keeping AIG alive and funded. This is the real crux of the matter.

AIG is the only thing standing between U.S. and European Banks and their likely collapse. Read the article below from the New York Times on 02/27/09 entitled "Propping Up a House of Cards" for an excellent explanation of this crisis within a crisis.

Here is an excerpt that sums up AIG's position, "...the (U.S.) government feels it has no choice (in funding): because of AIG's dubious business practices during the housing bubble it pretty much has the world's financial system by the throat. If we let A.I.G. fail, said Seamus P. McMahon, a banking expert at Booz & Company, other institutions, including pension funds and American and European banks "will face their own capital and liquidity crisis, and we could have a domino effect." A bailout of AIG is really a bailout of its trading partners - which essentially constitutes the entire Western banking system."

Jesus wept.

Reference:
New York Times, Feb 27, 2009 - AIG: Propping Up a House of Cards
http://www.nytimes.com/2009/02/28/business/28nocera.html?_r=1&ref=todayspaper