http://www.independent.org/publications/tir/article.asp?a=430

Would you invest in a financial-services firm under the current political climate? Would any competent executive agree to work for one?

It’s the old rules-versus-discretion debate. Even if these specific bonuses were illegitimate — and I don’t think we know this one way or the other — the long-term effect of breaking contracts at will needs to be taken into consideration.

Steve: I’d say the same thing. It’s not sacred, it’s law. And the last thing we need is politicians more overtly skating around the law than they already do.

ALSO, what about all the money going to European banks? The executive bonuses (which I agree are obscene) are chicken feed to all the money we sent to our friends across Europe.

It is clear in the current political climate that a contract is only as good as its populist political value.

“I used to be confused about the cult expressing itself in terms like “best and brightest”, “talent”, “innovation” being used in ways that clearly had no relation to the English language.

This was obviously an Orwellian ideological language, but it took me awhile to figure out that the key is that all these terms are being used in a corporatist, not even a capitalist, sense.

Therefore, whereas innovation normally refers to creating some new real value, and talent refers to innate ability at some real endeavor, here innovation refers only to finding new ways to seek and collect rent, the talent referred to is that of a con man, and the pivotal figures are the lobbyist, the lawyer, the PR flack, the captured regulator, the corrupt politician.

I don’t doubt they’ve been so immersed in this ideology for so long they have come to completely believe in it, and are incapable of seeing anything from any other perspective.

This also goes to the inability of this administration to look at things any other way. Whether one’s gut response to these AIG bonuses was, “this is unconscionable, these contracts are on their face invalid, let’s figure out how to fix this, but fix it we must and shall”, as opposed to “contracts are sacred, and we can’t do anything about it”, is clearly a matter of ideology and political will.

(By now strict legalities have nothing to do with the matter.)

That’s why the exemplary adminstration response was Summers blathering about the “rule of law”, how we can’t “abrogate” and so on. This is because he’s a hard-core ideological warrior for corporatism and has dedicated his life to enabling looting operations like this one.

He may deplore, on a tactical level, the brazen shoddiness of this particular extraction. But he cherishes this basic outcome. So of course he’s going to claim it’s a legal fait accompli, when it is in fact no such thing.”

In this case, however, the point is what REW’s comment implies: one cannot choose to ignore contractual obligations simply because one dislikes them, and do that just because one assumes the right through adding funds to that existing nexus of contracts. This is a very real danger of the bailouts and, especially, the political rhetoric in its wake. Suddenly (well, maybe not very suddenly) the enforceability of contracts is subject to political correctness and the willingness to make short-run political profits.

Just like REW points out, the mortgage obligations people walked away from are as contractual as are the bonuses. The enforceability of contract is condemned by the political elite in one case, and undermined (and inefficient contracts even subsidized) in the other. “Contract” has become a very relative concept.

But I suspect this is but the beginning. What is interesting is what this may lead to in terms of legislation and new legal interpretations. And this is where [moral] philosophy becomes a very important part of economic analysis.

“Even if this were the case, how would you feel if millions of taxpayer dollars that was intended to help save their companies was used to give them bonuses instead? Myself, personally, would still not be happy about it. (I find it implausible that the bonuses, in the current environment, actually help the company be more profitable.)”

The part in parentheses is key. Whether or not paying these bonuses improves company performance is the main question in all of this, a question that requires analysis and argument, not just the writer’s intuitive hunch.

“So why are the bonuses so horrible? In my opinion, it’s because they constitute the transfer of vast sums of wealth from millions of Americans who can’t afford it to a privileged few, which serves no other purpose than the interests of the few (who also happen to have been a lot better off in the first place).”

I agree that the transfer of millions from taxpayers to AIG is a moral outrage, but this has nothing to do with the bonuses per se. The money used for the bonuses would have been spent anyway. If AIG had not paid executive bonuses, but used the money to increase wages, build a new building, pay off bank debt, or throw a big Christmas Party, would McKitrick say that’s OK? The moral issue, in my view, is the total amount of money given to AIG, not the specific ways in which AIG spends that money.