. . . IMO, if the contracts in question were signed in good faith, then they should stand. If they were written in anticipation of AIG's downfall to protect those who would otherwise be accountable, they might be open to review.
It is my understanding, based on reports and live coverage of the congressional hearing that is now occurring, that AIG was aware of its precarious financial situation and ultimate downfall at the time the contracts were entered, and the contracts explicitly provided that the bonuses would be paid regardless of company losses. (If I remember correctly, Barney Frank read that provision out loud at the beginning of the hearing.) The CEO calls these bonuses "retention payments" even though the executive who obtains the money is not required to stay. Many executives who received these alleged retention payments left AIG before the retention payment become due.
AIG executives obviously foresaw that huge losses were on the horizon. They obviously foresaw that that AIG was "too big" to fail without taking the entire economy down with it. AIG obviously foresaw that the American taxpayers would be on the hook for these bonuses.
During the hearing thus far, it was pointed out to the AIG CEO that it is a routine practice for the industry, even if they owe money on contracts, to require the contract claim to be litigated. After all, AIG could defend against paying the bonuses by alleging that but for the government bail out, the company would have gone bankrupt and the bankruptcy court would have voided the contracts. Accordingly, AIG was under no contractual obligation to use taxpayer money to pay bonuses to the very executives whose lousy performance made the bail-out necessary.
The AIG CEO's testimony thus far is infuriating. He claimed that AIG honors the principle, to paraphrase, "when you owe people money, you pay it." That's an eyeroller given the industry history. He claimed that every action he asks the question, will this action help or hurt AIG's ability to pay back the taxpayer. In his opinion, paying the bonuses (or retention payments) would help AIG to pay back the taxpayer. The CEO, however, reneged on his promise to discuss this matter with the committee chairman BEFORE he made the decision. The CEO was aware that the taxpayers would be extremely angry, but claimed that is decision to pay the money on Saturday evening without prior discussions with Congress was not designed to be "under the cover of darkness."
The CEO was informed that his decision to make these outrageous bonus payments makes it extremely difficult for AIG to come back to the taxpayer and ask for more money. The CEO basically said, so what? He explained, if the taxpayer lets AIG go under, the taxpayer places the 170 Billion already invested in AIG at risk and the entire welfare of the global economy will go down with AIG. In other words, the CEO determined that congressional and taxpayer anger over outrageous executive bonus payments had no consequences as far as AIG is concerned because AIG is too big to fail. That is arrogance. The executives will stuff their pockets with millions of taxpayer dollars just because they can--so what? It doesn't even matter that anonymous AIG executives are getting death threats from angry Americans--because they can use those threats to keep their names confidential. The greedy bastards believe they are in a win-win situation.
Based on what I have heard thus far, I am strongly in favor of taxing these bonuses at a 100 percent rate.