From the NY Times – Obama Orders Treasury Chief to Try to Block A.I.G. Bonuses

In strongly-worded remarks delivered in the White House East Room before small business owners, Mr. Obama called A.I.G. “a corporation that finds itself in financial distress due to recklessness and greed.”

“Under these circumstances, it’s hard to understand how derivative traders at A.I.G. warranted any bonuses at all, much less $165 million in extra pay,” Mr. Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

I don’t have all of the details, but I think a much better question would be.  When the government gave all of this money to A.I.G. time, and time again, did they ever think of putting conditions on it that restrict bonus payouts?  If not, then get over it.  These employees of the firm have a compensation package that includes bonus payout.  In many cases, their base pay is likely lowered to reflect this bonus payment.

All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multimillion-dollar bonuses,” said Mr. Obama, who called the issue one of “fundamental values.”

“All they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules,” he said.

A.I.G. entered into contracts with its employees.  These contracts entitle the employees to bonus payouts based upon conditions.  The conditions may have been wrong, and they may not be deserving based upon your criteria, but that does not change the contract.  That is the rule we are all playing by – the law.

A.I.G. executives say that they are contractually obligated to pay the bonuses to their executives, including those who are part of the A.I.G. division where the company’s crisis originated.

The government’s rescue of the insurer began last fall with the Federal Reserve’s $85 billion emergency loan. The taxpayer assistance has now grown to $170 billion, and the government owns nearly 80 percent of the company. On Sunday, the company disclosed the names of dozens of financial institutions that benefited from the bailout money injected into A.I.G. that the insurer then paid out to satisfy financial contracts.

This sort of lunacy is the reason moral hazard is continually discussed.  President Obama, get out of A.I.G., Bank of America and Citi.  If these institutions are insolvent, then assist with an orderly bankruptcy , nothing more.  We cannot have shell companies that are forced to operate with political pressure on every move.

Let the markets work.  For the sake of our country.  Quit meddling with these organizations, quit forcing money down their throats and then expecting them to act differently.