Abrogating AIG's Bonus Contracts


	Abrogating AIG's Bonus Contracts

Brian Wingfield

3-18-2009 12:47 PM

589 views

tags:

aig, bonuses, contracts

Brian Wingfield says:

Very interesting post by Rutgers law professor Anna Gelpern on whether AIG's bonus contracts can be abrogated. In short, the answer is yes. But it's a slippery slope that shouldn't be used "early and often." Check out her analysis.

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<div style="margin: 12px 0px; font-family: arial; color: #333333; background: #ffffff; border: solid 4px #e5e5e5; width: 100%; clear: left;"><div class="CM_CTB_Content_Wrap" style="margin: 0px; padding: 0px;background-color: #ffffff;"><div style="border-bottom: solid 1px #dcdcdc; white-space: nowrap; margin-bottom: 8px; background-color: #eeeeee ;background-image: url(http://clipmarks.com/images/source-bg.gif); background-repeat: repeat-x; height: 24px; line-height: 24px; vertical-align: middle; padding-bottom: 4px; color: #666666; font-size: 10px;" ><a href="http://clipmarks.com/clip-to-blog/" title="see clips that are hot right now"><img src="http://content.clipmarks.com/blog_embed/2d344e22-164b-43ae-bcd7-0bef1f58fc59/CC1F0F45-8EB0-4DC8-92F3-AD20414E7E0E/" alt="" width="19" height="19" border="0" style="vertical-align: middle; margin: 0px 4px; display: inline; border: none; float:none;" /></a>clipped from <a title="http://www.rgemonitor.com/globalmacro-monitor/256041/contracts_and_crises" href="http://www.rgemonitor.com/globalmacro-monitor/256041/contracts_and_crises" style="font-size: 11px;">www.rgemonitor.com</a></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://www.rgemonitor.com/globalmacro-monitor/256041/contracts_and_crises"><P>The tussle over AIG bonuses brings back a familiar crisis meme: the sanctity of contracts.  It is a red herring – sort of.</P></blockquote><div style="height: 2px; font-size: 2px; background: #dcdcdc; border-bottom: solid 1px #f5f5f5; margin: 2px 4px;"></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://www.rgemonitor.com/globalmacro-monitor/256041/contracts_and_crises"><P>Any financial collapse worth its salt runs into contracts that might have been a good idea in good times, but now look disastrous because they threaten either widespread economic distress (mortgage and securitization contracts), or gross political embarrassment (bonus commitments).  Every government fighting a crisis thus faces a choice whether to enforce such contracts.  Enforcing contracts where private parties have no money means either suffering default and firm failure, or using public funds to pay up on the parties’ behalf.  The alternative is using government power to rewrite the contracts.</P></blockquote><div style="height: 2px; font-size: 2px; background: #dcdcdc; border-bottom: solid 1px #f5f5f5; margin: 2px 4px;"></div><blockquote style="text-align: left; padding: 0px 8px; margin: 4px 0px 8px 0px; background: transparent; border: none;" cite="http://www.rgemonitor.com/globalmacro-monitor/256041/contracts_and_crises"><P>Where contracts turn into social suicide pacts, the cost of abrogation seems small by comparison.  But abrogating early and often risks wasting a good tool and dragging some law down with it.</P></blockquote></div><div style="margin: 0px 6px 6px 4px;"><table style="font-size: 11px;border-spacing: 0px;padding: 0px;" cellpadding="0" cellspacing="0" width="100%"><tr><td style="background:transparent;border-width:0px;padding:0px;">&nbsp;</td><td align="right" style="background:transparent;border-width:0px;padding:0px;width:107px" width="107"><a href="http://clipmarks.com/share/CC1F0F45-8EB0-4DC8-92F3-AD20414E7E0E/blog/" title="blog or email this clip"><img src="http://content6.clipmarks.com/images/c2b-foot.png" border="0" alt="blog it" width="107" height="17" style="border-width:0px;padding:0px;margin:0px;" /></a></td></tr></table></div></div>

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