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Contracts Go Both Ways – AIG Should Turn Them Over

The federal government’s answer to the furor over AIG’s payments of ridiculous multi-million dollar bonuses to the same executives who helped drive the company into the ground seems to be “we can’t break a contract.”

But what about what the executives promised to do under those employment contracts? Surely those contracts required managers and executives to act in good faith on the company’s behalf and not gamble away all its assets. Even if the bonuses weren’t based on current profits, they must have been based at least on the employees doing a decent, good faith, legitimate job. And selling risky credit-default swaps — insuring really, really bad debt — may well not meet those standards.

So why haven’t we — the taxpayers who supposedly own some 80 percent of the company now — seen the contracts yet?

New York Attorney General Andrew Cuomo is probing the matter, and he has the right idea in questioning the legitimacy of the bonuses, noting that the company may have violated New York laws prohibiting “fraudulent conveyances.” If a company enters contracts to pay money it “effectively doesn’t have, it’s akin to a looting of a company,” Cuomo said [in a conference call](But what about what the executives promised to do under those employment contracts? Surely those contracts required those executives to act in good faith on the company's behalf and not gamble away all its assets. Even if the bonuses weren't based on current profits, they must have been based at least on the employees doing a decent and legitimate job. So why haven't we -- the taxpayers who supposedly own some 80 percent of the company now -- seen the contracts yet?) with reporters. If the AIG contracts were signed when the people in charge knew “the finances were going south,” it could be considered a fraudulent conveyance, Cuomo said.

While Cuomo investigates, Congress ought to be insisting that AIG come clean about how and when those contracts were negotiated, what exactly they say, and whether the those lucky employees in the AIG unit that triggered our global economic crisis and received $165 million in bonuses so far (a total of $1 billion was supposed to be paid out, according to Bloomberg) actually fulfilled their contractual obligations.

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