Of course this whole AIG thing is ridiculous - of course the governement should get the bonuses back, and not just for this year, but for previous years too.

Here is a very good article on the subject:

http://www.ft.com/cms/s/0/fa89be08-02aa-11de-b58b-000077b07658.html?nclick_check=1

Brief synopsis - if financial wizards follow a strategy that will provide profits most years, but risk a catastrophic blowout like the one we're seeing every 10-20 years, then the public has every right to demand repayment of paid bonuses over the entire period.

He is absolutely right - we should go after not just this year's bonus payments, but bonus payments made over the last decade, and not just at AIG, but also at the other troubled financial institutions that all played such a large role in creating the current mess.

Perhaps this is what Summers really means?

Laws can be broken, but contracts are sacrosanct.

That didn't seem to apply to union contracts.

You got me there.

It's just a game of the rich get richer (and the powerful do what they want).

You are failing to understand the difference

between honoring a contract for work already performed, and honoring a contract for future work.

Two points:

1) We're talking about bonus payments, not salary. I don't know what the employment contract states, but usually bonuses are based on company performance and are paid at the discretion of management. It doesn't matter that the work has already been performed, because they were paid (a salary) for that work already.

And the performance was, well, less than stellar. Basically management at AIG is giving out taxpayer money as bonuses. That should not be allowed.

2) I think clawback of prior years is warranted in this instance, at least for the top executives. The level of risk they took with the entire economy was morally criminal, if not legally so.

Taleb explains this whole thing very well in the article I posted earlier. When you play a losing game, but the time scale over which the failure occurs (decades) is much longer than the time over which bonuses are given (annual), then clawback makes perfect sense, because the money was never really "earned" in the first place. There was only the appearance of profit. There is no reason why the Citibank CEO should be able to keep the multi-millions he's got in the bank.

Admittedly, I'm not sure where the appropriate place to draw the line is in this case, or in other words which levels of management would be subject to clawback and which would not. Clearly you want to get clawback only from those responsible, not for secretaries and the like who didn't play a part in setting company policy or making the financial decisions.

Glenn, this is a good post, and I agree with what you've written. Journalists have abdicated their responsibilities, are being sycophantic, etc.

But to be honest, I'm getting a bit weary of it. Don't get me wrong - it's your blog, you can do what you want with it. I'm just offering my opinion here. I hope you'll focus a bit more on Obama's civil liberties abuses, or even on some refreshing tangents like the drug issue or the inability of homosexuals to get visas for their partners. I learn a lot more, and find the discussions more enjoyable/educational on those other topics.

The time has come to see whether the banking system really fails without AIG, and to start jailing people for fraud, racketeering, and possibly blackmail. Bernie Madoff's claim to the biggest fraud in history seems like it will be a shortlived stint, not even long enough for Guiness to go to print.

I'm all for jailing the malefactors for fraud.

However, I'm not prepared to roll the dice with the banking system. The potential for a complete meltdown is real, and would be truly awful. Failures lead to layoffs and bankruptcies, which lead to more failures, which lead to more layoffs and bankruptcies, potentially ad infinitum.

I'd rather see nationalization. Why are these institutions still private? I just can't understand it. Nationalize the zombies, then the goverment can ensure that these absurd bonuses aren't paid out, and they can ensure the bailout money goes towards easing credit instead of being hoarded. They could also start renegotiating failing loans, etc.

Providing all this money to keep the companies going, and getting nothing in return is literally insane.