Monday, March 16, 2009

AIG Bonuses

I was just listening to some discussion on NPR about AIG using government bailout money to pay bonuses to some of the people involved in the financial mess that put the company on the brink of failure. Apparently, those bonuses were guaranteed by contracts and the government is obligated to honor them. What I haven't heard in any of the hand-wringing over what all of these companies are (or aren't) doing with the bailout money is the benefit of not having given any in the first place. Everyone seems to assume that it was the right thing to do. Well, if AIG (or your favorite bailout recipient) hadn't gotten that money, they'd likely be bankrupt and those incompetent CEOs would be gone (as well as whatever management thought it was a good idea to give out crazy contracts) and those contracts would be in bankruptcy court where they would likely go to the very bottom of the list of outstanding debts. The free market has penalties for failure and those penalties are more just than the alternative. Those penalties will still be paid, but the market would ensure that they would be paid by those who deserve to.

Further reading here.

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