Paying the bonuses may be unpopular but that does not mean that it is the wrong decision.
The employees at AIG have a contract to collect those bonuses. Drawing up a contract that contains bonuses with such weak conditions is a poor business decision. Furthermore, I do not think these employees deserve those bonuses. There is a contract, however, and that should be honored.
An historical example: After the revolutionary war, Hamilton decided to pay back all debts. To finance the war, the Continental Congress had to draw up debt. Many soldiers who fought in the war sold the seemingly worthless pay obligations from the Continental Congress to speculators for pennies on the dollar. When Hamilton honored the contract, many soldiers were left out in the cold and speculators made huge profits.
Ultimately what holds the system together is faith that contracts will be honored. An effective government is one that ensures contracts are upheld, no matter how unpopular.
The only way I could see canceling these contracts is if the amount was so large that it severely hindered the rescue effort of AIG.
Tuesday, March 17, 2009
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