Comment by next_xibalba
2 days ago
You’re withholding important context.
Bonuses (owed under preexisting agreements) were an unfortunate necessity. The USG effectively nationalized AIG because it was determined to be too systemically important to be allowed to chaotically fail. So, the new owners needed to retain the employees necessary to continue its operations. To do so, they had to honor employee compensation agreements.
This turned out to be a wise move as the American taxpayer ended up turning a profit on the AIG bailout.
And it wasn’t as though the bonuses were uncontroversial. They were possible bc of loopholes in the bailout legislation. But the government was furious and, alongside public outrage, pressured the executives to give the back bonuses. The house of representatives even passed a bill to tax the bonuses at 90%. Many did voluntarily give them back.
If your company has enough money to pay bonuses, then your company does not need to be bailed out.
If your company can afford bonuses after getting bailed out, then you never needed to be bailed out.
Bankruptcy court would almost never allow bonuses to be paid out during any sort of BK.
With respect, I think this is a naive opinion. The banks that were bailed out were systemically important. This would not have been normal bankruptcies, with a very real risk of plunging the U.S. into a depression as bad as or worse than the Great Depression. So, the objective was to prevent that. And in order to keep these institutions in good working order by retaining the key employees who operated the institutions, bonuses were approved. It was distasteful and there was significant public and legislator outrage.
And, once again, the taxpayer turned a tidy profit on the bailouts.
> So, the new owners needed to retain the employees necessary to continue its operations. To do so, they had to honor employee compensation agreements.
At that point, compensation agreements with a previously solvent employer are... negotiable.
There's no "had to" in that scenario.
The government wanted to retain the people who knew how to run the thing. Those people wanted the most money they could get.
The deal could have been whatever the two of them struck -- and the public anger was/is that historically the government hasn't bargained very hard against the leadership of companies in that scenario.