BY
BOARD EDITORIAL
American International Group (AIG), the once-proud and preeminent insurer, got a good old-fashioned dose of American anger this week when it announced that it was paying over $165 million of bonuses to 418 employees. AIG insisted that the bonuses, dozens of which exceeded $1 million, had to be paid or else it would be violating its contractual obligations.
Equally ridiculous was the comment by President Barack Obama ’91’s economic adviser, Lawrence Summers, who said that “the government cannot just abrogate contracts”. Perhaps during his peregrinations following his ouster as President of Harvard, when he was known for such antics as crashing undergraduate pizza parties, Summers ought to have wandered into a law school contracts course.
The truth is that contracts are constantly being renegotiated through mergers and acquisitions, torn-up via bankruptcy, and influenced by political and economic pressures. Indeed, any first-year contracts student knows that the law recognizes many valid excuses from contractual duty and justification for breach.
For AIG to cloak its decision in “sanctity of contract” language is nothing short of laughable, given that, as Pennsylvania Law School Professor Tom Baker stated, “[AIG] pioneered the use of commercial leverage to get people to accept less than what the contract supposedly required.” Even Beneficial Professor of Law Charles Fried, who described contractual obligations as “a keystone of a well-functioning system of business and credit,” noted that respect for contracts “surely does not mean the money should have been paid out no matter what.”
The moral outrage for AIG’s actions is not only a product of AIG’s misuse of hundreds of billions of dollars in taxpayer bailouts, but also the palpable sense that there are two sets of rules for two different classes of workers.It is deplorable that appeals to the inviolability of contracts only raises its deformed head when the workers involved are predominantly wealthy, educated, and white. Working class Americans have no such protection.
Indeed, even the 12% of working class Americans who have union representation are by no means guaranteed the job security of contract labor. According to the International Brotherhood of Electrical Workers, one in three unions are unable to negotiate contracts with employers.
Where were the sanctimonious cries about contracts when the UAW was forced to accept drastic cuts in benefits in exchange for continued federal funding? Where was the outrage when airline employees took dramatic pay cuts in the wake of airline bankruptcies precipitated by the 9/11 attacks?
The public was silent, in these cases and countless others, because we have come to demean working class jobs in Modern America and think little of the individuals who toil in obscurity performing them. On the other hand, for decades, Americans have viewed financial executives, insurance experts, and, yes, elite lawyers, as indispensable to our economy and our nation. Gordon Gecko, far from being maligned for his greed and callousness, was hailed by many as a great symbol of what cutthroat capitalism could produce. “Greed,” Gecko said, “is good.”
Americans lived by Gecko’s creed for decades. But today, our slumbering consciences roused to anger by the incompetence and greed of Wall Street financiers and AIG executives, we no longer kneel at his proverbial throne. As New York Attorney General Andrew Cuomo stated, “Their mythology starts with the false premise that these are irreplaceable geniuses.”
Thus, the same claims of contractual necessity and the need to keep the “best and brightest” that once produced astonishing public deference now evokes equally astonishing rage.