Monday, March 23, 2009

Fear of Government Abuse

Posted By: Sean Brown

NEW YORK ( -- Last week's angry-mob-with-pitchforks approach to bonuses paid by AIG may give way to a more pragmatic approach this week as lawmakers and investors weigh the potential risks of the proposals before them.

The issue is likely to be a key one on Tuesday morning at a congressional hearing when Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner will testify before lawmakers on oversight of the government's intervention at American International Group.
AIG has been given access to $182 billion in taxpayer funds in the past 6 months. Recently it paid out $165 million in retention bonuses to employees in the company's financial products division. Those bonuses were written into employee contracts written in early 2008.
In a breathless run to smite those who took government funds and used them to enrich their own players, the House last week passed legislation that would have taxed the bonuses such that the recipients would in essence get to keep none of them.

The Senate introduced a similar measure, but its passage is far from assured. Over the weekend, both the White House and some key senators expressed doubts about both bills.
No one disputes that paying out those bonuses given the country's current predicament -- which was exacerbated in great part by AIG's reckless behavior -- was inappropriate and distasteful, contract or no. But the legislative proposals on the table to rectify the situation may end up doing more harm than good in the broader scheme of things.

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