Cafe Hayek - Latest Comments in Grassley is unhappy

Re: Grassley is unhappy

Methinks — Wed, 18 Mar 2009 07:07:41 -0000

You say, "Thank you sir may I have another?"

Or you leave. While you still can.

Re: Grassley is unhappy

Kevin — Wed, 18 Mar 2009 06:55:42 -0000

If congress can do whatever it wants, there is no point to any of the laws in this country because we have a kingdom.

No kidding. The protestations of readers of the Constitution notwithstanding, the guys with the guns make the rules, and that's all there is to it.

If the king shoves the shilling down your throat, then what?

You say, "Thank you sir may I have another?"

Re: Grassley is unhappy

vidyohs — Tue, 17 Mar 2009 15:57:39 -0000

Charlie was terribly naive here:

"If AIG were in bankruptcy, wouldn't these bonuses be reviewed by some judge anyway? Is it really so much worse to have congress review it than a judge?

Posted by: Charlie | Mar 17, 2009 9:58:56 AM"

Charlie, with an individual judge reviewing the cases there is a slight remote distant tenuous possibility that the review would done with honesty. Congress? No chance from that nest of cesspool whores.

Re: Grassley is unhappy

Methinks — Tue, 17 Mar 2009 14:17:58 -0000

CEOs and other top executive are not just any employees.

Right. However, the broohaha is not about executive and CEO pay. It's about the variable portion of the pay and retention bonuses for traders. The company wants to keep its profitable traders. I assure you it's busy screwing the unprofitable traders on their bonuses and they aren't actively being retained either.

As a business decision, this is a good one. If the company is not going to be allowed to go bankrupt, it should hold on to its most valuable employees because that's its only hope of returning to profitability, obviating the need for future bailouts. Their profitable traders actually do have plenty of demand and they'll leave. The marginal traders will remain at AIG because there's no bid for them.

BTW, I don't think AIG had a choice. They did try to find outside capital but couldn't. The government inserted itself with the excuse of "crisis" and "systemic risk". I don't much care what happens to the CEO, but he's not getting a bonus last I checked.

The job of Congress is what Congress says it is

That's an unrestrained view. The constitution is meant to restrain that view. If congress can do whatever it wants, there is no point to any of the laws in this country because we have a kingdom.

If the king shoves the shilling down your throat, then what?

Re: Grassley is unhappy

Martin Brock — Tue, 17 Mar 2009 12:09:16 -0000

No, Martin, Charlie makes a scary point. Bonuses would not be reviewed by a judge because every compensation package is hammered out in the contract.

If I'm the sole owner of a corporation and the corporation borrows a million bucks from you, out which it pays me a contractual annual salary of one million bucks, and the corporation then declares bankruptcy, you can bet that a judge will review this contract. CEOs and other top executive are not just any employees. Their bonuses are not simply comparable to the janitor's wage.

Furthermore, while it may be a bankruptcy judge's duty to review contracts, it is not the job of congress. That's part of that whole "separation of powers" thing we're supposed have going for us in this soon to be Banana Republic.

The job of Congress is what Congress says it is, because Congress can incinerate entire cities. Congress decided that bailing out AIG was its job, and AIG went along with it. When you take the King's shilling, you march to his drummer.

I don't take seriously any pretense of moral outrage under the circumstances. If the CEO of AIG doesn't like Congressional meddling with his bonus, let him find some honest work.

Re: Grassley is unhappy

BoscoH — Tue, 17 Mar 2009 11:36:29 -0000

MnM, you are such a Bayesian. All we can do is ignore it and delete it. Notice that the omniscient President Obama has tried or plans to try to solve the economy, health care, global warming, education, and agriculture. But even a man as powerful and knowledgeable as he knows that there is no way to stop spam.

Re: Grassley is unhappy

Guest — Tue, 17 Mar 2009 10:47:28 -0000

Is there anything we can do stop the spam?

Re: Grassley is unhappy

BoscoH — Tue, 17 Mar 2009 09:08:35 -0000

I'm not terribly exercised over the bonuses. This is like when you were a kid and your crazy aunt gave you $20. You spent it on candy and your crazy aunt got all upset that you didn't give it to the food kitchen.

When people warned of "moral hazard" as these bailouts began, they may not have known it, but this is exactly what they were warning about. Senator Grassley (his name makes me laugh) knows absolutely nothing about what AIG does, how its incentive structure works, whether the bonuses go to profit centers of the company that need to perform well to pull the company out of its hole, etc. Yet, he opines that they should all put on matching sneakers and go Heaven's Gate on us. Senator, it's an accountant, not a choice!

Re: Grassley is unhappy

Methinks — Tue, 17 Mar 2009 08:51:12 -0000

Apparently, running a prostitution ring out of your home is not considered a "sexual dalliance" and is a-okay. If you're a non-politician running a prostitution ring out of your house, you obviously deserve to rot in jail. Banana Republic.

Re: Grassley is unhappy

Methinks — Tue, 17 Mar 2009 07:59:25 -0000

Mjh, I admit that I'm a little out of my element as I'm not a bankruptcy lawyer. I only know what I know because I was forced to take law classes for my job and the order of priority in bankruptcy has a bearing on valuation of assets.

My understanding: most secured credit is secured with specific assets. So, any proceeds from the sale of the asset belongs to the creditor. I don't know why the bankruptcy judge put employees below unsecured creditors. Typically, working without pay is considered slavery and I think there may be some labour laws that deal with that. Most employees don't contract for conditional pay. Like you, I would be interested in finding out more. I suspect the answer is that it's conditional on circumstances.

The complicating factor here is that AIG didn't go bankrupt. It was nationalized. In effect, it got a brand new investor. No brand new investor would be allowed to override the board and executives to abrogate existing contracts. If the government can choose to impose itself on companies and then rearrange things to its liking, we don't have a free country and we don't have rule of law. We definitely have a banana republic.

Re: Grassley is unhappy

Sam Grove — Tue, 17 Mar 2009 07:53:42 -0000

Being an elected official means never having to say you're sorry...unless you are caught in a sexual or financial dalliance.

Venal corruption is not allowed, systemic corruption is the order of the day.

Re: Grassley is unhappy

dullgeek — Tue, 17 Mar 2009 07:30:19 -0000

The order of payment in bankruptcy puts employee compensation ABOVE all other payouts, including taxes

I don't think that's true. In fact, I think employee compensation comes last. The only reason that I say this is that I worked for a company that went bankrupt. I lost salary as a result. And during the bankruptcy proceedings, it was made very clear that the order of priority was:

1. Secured creditors

2. Unsecured creditors

3. Employees

I didn't find anything fruitful searching the internet. Anyone able to find references that confirm or contradict this?

Re: Grassley is unhappy

Superheater — Tue, 17 Mar 2009 07:22:32 -0000

Grassley is one of those people that has a single talent-bloviating. Unfortunately, bloviating is the principal skill of a Senator.

Re: Grassley is unhappy

Methinks — Tue, 17 Mar 2009 07:11:06 -0000

No, Martin, Charlie makes a scary point. Bonuses would not be reviewed by a judge because every compensation package is hammered out in the contract. People who received less than they were contractually obligated to receive have successfully sued companies in the past. The order of payment in bankruptcy puts employee compensation ABOVE all other payouts, including taxes. Creditors are actually third in line after employees and Uncle Sam. Judges will not change employment contracts and if an employee were promised variable compensation based on his personal performance, that contract would not be abrogated by a bankruptcy judge.

Furthermore, while it may be a bankruptcy judge's duty to review contracts, it is not the job of congress. That's part of that whole "separation of powers" thing we're supposed have going for us in this soon to be Banana Republic.

Re: Grassley is unhappy

Methinks — Tue, 17 Mar 2009 07:01:14 -0000

So, when can we expect everyone in congress to kill themselves or resign.

I don't understand why they should be held to a different standard of performance.

Re: Grassley is unhappy

Martin Brock — Tue, 17 Mar 2009 06:53:40 -0000

They've all become political and subject to the whims of the political elites and the mob.

Like that wasn't true a year ago and two, ten and fifty years ago.

Re: Grassley is unhappy

Martin Brock — Tue, 17 Mar 2009 06:51:57 -0000

Charlie makes an excellent point.

Re: Grassley is unhappy

bjartur — Tue, 17 Mar 2009 06:48:23 -0000

perfect

Re: Grassley is unhappy

Brandon — Tue, 17 Mar 2009 06:46:01 -0000

Thanks for that, Russ.

Re: Grassley is unhappy

geoih — Tue, 17 Mar 2009 06:39:27 -0000

Qoute from Charlie: "If AIG were in bankruptcy, wouldn't these bonuses be reviewed by some judge anyway? Is it really so much worse to have congress review it than a judge?"

Which is exactly the problem. These decisions are no longer driven by business cases, stock holders, economics, or even law. They've all become political and subject to the whims of the political elites and the mob.

Now, try to model that.

Re: Grassley is unhappy

Charlie — Tue, 17 Mar 2009 05:58:56 -0000

If AIG were in bankruptcy, wouldn't these bonuses be reviewed by some judge anyway? Is it really so much worse to have congress review it than a judge?

Re: Grassley is unhappy

Catherine — Tue, 17 Mar 2009 05:28:39 -0000

Honestly these guys at AIG deserve their bonuses. They were brilliant in being able to get Congress and the government to give them tons of money...

Re: Grassley is unhappy

Martin Brock — Tue, 17 Mar 2009 04:34:01 -0000

Agree with Grassley, both of them.