Politicians of both parties are shrieking about AIG’s bonuses. The government can’t do much about it because, of course, these are contractual obligations. (AIG could and should have gone to executives to renegotiate those contracts, but they couldn’t unilaterally void the bonuses either.) But wait. This is precisely what flows from avoiding the bankruptcy courts. That is the legally proper and very efficient forum in which to void contracts, reduce liabilities, and throw out the otherwise entrenched and obviously defective management.
But in our bailout frenzy we are insisting that companies not utilize that time-honored mechanism. Instead we have contractual obligations we don’t like, dense management, and taxpayer-sponsored inanity. It is the very worst of capitalism, in which bad behavior is not eliminated but subsidized by the government. As a conservative friend remarks, “This is incompetent crony capitalism.” It’s enough to make us all rabid populists.
So the next time Barney Frank or Larry Summers cry foul, the question should be: Why didn’t the government send them to the bankruptcy courts? And better yet: Why is it still giving AIG and many similar firms billions of taxpayer money?