Hamilton, Madison, and Jay

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Location: Mesa, Arizona, United States

Who are we? We're a married couple who has a passion for politics and current events. That's what this site is about. If you read us, you know what we stand for.

Wednesday, March 18, 2009

Going After AIG Bonuses Questionable

Unless you have missed the news in recent days AIG paid out $165 million in retention bonuses to employees who were informed, last year, that they might be laid off. The retention bonuses were paid to keep them with the company until the lay-offs occurred. It is standard business practice and is not illegal. But those connected to this in Congress, and the president, are outraged these bonuses were paid out of the bailout money given to AIG. What is truly pathetic about this is Senator Chris Dodd wants to tax the recipients of these bonuses which could lead to some legal headaches down the road:

Senator Chris Dodd (D-Conn.) on Monday night floated the idea of taxing American International Group bonus recipients so the government could recoup the $450 million the company is paying to employees in its financial products unit. Within hours, the idea spread to both houses of Congress, with lawmakers proposing an AIG bonus tax.

While the Senate constructed the $787 billion stimulus last month, Dodd unexpectedly added an executive-compensation restriction to the bill. That amendment provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009,” which exempts the very AIG bonuses Dodd and others are seeking to tax. The amendment is in the final version and is law.

You may be asking yourselves where the legal problem comes into this? It begins with the question of whether or not this proposal by the Congress is a bill of attainder or an ex post facto law; a distinct possibility that was making it's way around the blogosphere and talk radio yesterday. The bill of attainder is questionable as Congress is not passing criminal judgment on AIG, which is what a bill of attainder is. That is when a legislative body passes judgment on guilt or innocence without a trial. What AIG did was not criminal in any sense of the term.

An ex post facto law is a law passed after the occurrence of an event or action which retrospectively changes the legal consequences of the event or action. In other words, what Senator Dodd is proposing, and Congress seems to be backing, could by definition be an ex post facto law, which is unconstitutional under Article I, Section 9, Clause Three -- "No bill of attainder or ex post facto Law shall be passed."

If it is not viewed as such, i.e., an ex post facto law, then it could be viewed as a breach of contract. Remember the provision above:

That amendment provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009,” which exempts the very AIG bonuses Dodd and others are seeking to tax.

If these poor fools in Congress force AIG to take back those bonuses, they open up AIG to lawsuits against them for a breach of contract. A contract is an agreement between two or more parties that creates an obligation to do or not do something. A breach of contract is the existence of an agreement or bargained-for exchange where one of the parties fails, without a legally valid excuse, to live up to his or her responsibilities under the contract.

In this case, the only excuse AIG could offer is that the federal government is demanding they take back the bonuses, but that is hardly considered "legally valid" as the legislation dealing with their bailout money did not limit AIG in what it did with the money it received. Furthermore, the media is purposefully misrepresenting these bonuses as money paid to executives, which is not the case. These were retention bonuses. The Wall Street Journal, yesterday, touched on this, and the real outrage Americans should be focused on which has nothing to do with the bonuses at all, but rather how the federal government has used AIG to "launder" money to foreign banks and domestic corporations that either could not receive bailout funds directly, or refused the bailout money altogether.

Either way you look at this, demanding the bonuses back puts the government in a sticky, legal situation. It would be better for them to drop this, and sweep it under the rug before the American populace actually learns the truth behind this faux outrage.



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