Monday, March 16, 2009

Let AIG fall.

There's a lot of furor over the current situation with American International Group, the sometime insurance giant that the government told us was "too big to fall". It was decided to give billions of taxpayer dollars to the ailing company, in the hopes that all the businesses, American and foreign, that have a vested interest in AIG's future wouldn't collapse if AIG did.

Lately, though, it's been discovered that, before AIG's current economic straits, a certain number of executives signed contracts that included multimillion dollar bonuses to remain with the company. Now, Edward Liddy, the new CEO, intends to honor those contracts to keep the executives from leaving, which could cause the company to fall anyway, which the government has worked so hard and spent so much to prevent.

Naturally, the average taxpayer and his representative in Washington is furious about this. Paying hundreds of millions in bonuses? The president and Congress are vowing to find ways around these contracts so that the company will no longer be a burden on the taxpayers. Personally, I never wanted it to be a burden at all.

So, I have a suggestion: let AIG fall.

It's going to happen. The only way to prevent it is to keep increasing government funding and government control of the company. American taxpayers "own" about 80% of the stock, but who really wants it? As for the new head of the company that the government recruited and installed, he has no choice but to follow the law and honor the contracts.

What do they expect will happen if those contracts are broken? Again, it is government interference, for whatever reason and under whatever justification. Either those executives agree willingly to let Ed Liddy release them from their contract obligations, or the company goes bankrupt and the courts order them to renegotiate. Any other avenue is, by definition, unconstitutional.

This is why bailouts are a bad idea. You cannot give money to a company without taking a stake in how that company operates; and when the government takes a stake and starts dictating, that's socialism.

They should never have given them any money in the first place. Now they have the choice of letting the executives keep their bonuses in the hopes that AIG is once again successful and pays back the loan (some day), or breaking the contracts and watching these executives leave for much better jobs at companies that don't deal with government interference. At that point, AIG really will fall. Or the government can always bring in even more of its own handlers to take their place.

You break a vicious cycle ... by breaking it.

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