Hats off to Larry Summers. The president's chief economic advisor told ABC News' George Stephanopoulos on Sunday that there's nothing to be done about the fact that American International Group is contractually obliged to pay millions of dollars in bonuses to thousands of employees, some of whom helped ruin their company -- and, to some extent, the national economy. "We are a country of law; there are contracts. The government cannot just abrogate contracts."
From what I can tell, the bonuses do stink -- although some are as small as $1,000 and presumably go to people who had no significant part in the credit-default-swap-derivative mania of recent years. But let's assume that they're all gratuitous. Summers was still right.
When the federal government, on behalf of taxpayers, opted to essentially nationalize AIG -- we now own 80 percent of the company -- we made a choice to keep it alive. If the firm had gone out of business through bankruptcy -- what the gods wanted in the first place -- there would be no bonuses. But we chose not to do that. Which means those bonuses are just one more toxic debt for which we are on the hook. For good or ill, we chose to defy the natural order. And now we own this monstrous white elephant.
Here's a good rule of thumb: When you buy an elephant, you can't refuse to buy the manure that comes with it. You can try, but, soon enough, you'll be knee-deep in problems anyway. And they'll continue to pile up no matter how loudly you complain, "This isn't what I paid for."
Unfortunately, it looks like Summers is fighting a losing battle.
New York Attorney General Andrew Cuomo is getting set to churn out subpoenas to investigate the bonuses. Rep. Elijah Cummings (D-Md.) demanded that AIG Chief Executive Edward Liddy, who came aboard after these contracts were signed and the company imploded, resign. Somehow I doubt that would make hiring a new caretaker any easier.
Meanwhile, Rep. Barney Frank (D-Mass.) wants to fire anyone who takes the bonuses. "These people may have a right to their bonuses. They don't have a right to their jobs forever," Frank said on NBC's "Today" show Monday. "Forget about the legal matter here for a second. These bonuses are going to people who screwed this thing up enormously, who made terrible decisions."
One wonders, given that logic, why Frank is accepting a congressional pay raise considering his role in the Fannie Mae and Freddie Mac debacle.