AIG Employees: 165 Million, Treasury: 0

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So much for the idea of lifting the bonuses from AIG employees. Tim "The Safecracker" Geithner has reported to Obama that there is no legal way to reclaim the bonuses already paid to AIG employees, and that any attempt to do so would likely result in lawsuits and awards that exceeded the total cost of the bonuses. This wasn't hard to calculate (we speculated on it yesterday) since most claimants would be entitled to treble damages in recovery. The case for wanton, malicious interference with contract here is pretty strong, given that the government was pretty public about the way it targeted AIG employees, and considering the clear anger with which it did so. This was a bit immature of the Administration. Presidents aren't supposed to get choked up with anger unless Americans die. "Unfair bonus payments" that amount to a tiny fraction of the dollars at stake shouldn't be worthy of Presidential rage.
This result isn't surprising, except insofar as there wasn't a more direct extralegal power grab once Geithner delivered the bad news. Though it is popular to try and claim all manner of power over a firm 80% owned by "the taxpayers," the reality is that nothing in that relationship gives the government the power to freeze payments like the ones AIG made to its employees. Much as armchair legal theorists would like to find a way to introduce "mob rule" here, it isn't that simple. Even our good friend Andrew Ross Sorkin seems to admit that this battle might have been won and lost already.
You have to give some credit here to Liddy, the new AIG CEO installed after the present debacle. In the face of all the pressure Geithner could bring to bear, Liddy simply explained to Geithner that he intended to pay the bonuses, and did. That Liddy is still sitting in the executive suite is case enough that the administration is a lot more powerless than it would like to be.
All this aside, the government is pissed now. And a pissed off government does stupid things. Brace yourself for some stupid.
Political Heat Sears AIG [The Wall Street Journal]

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