i can solve the AIG dilemma

this whole kerfuffle about AIG bonuses is just political theatre. the problem is the term "bonus." if payment of a sum of money to an employee is guarenteed in a contract, that doesn't really seem like a bonus, does it? it's just part of their salary that happens to be paid at the end of the year. people who want to make a big deal of this seized on the word "bonus" as a great way to make hay, but I think the answer is clear cut. pay an employer-voluntary sum to an employee -- aw, hell no. honor your contracts -- yes.

i guess the details are a little unclear about whether, in the first place, the writing of the contracts to guarentee the poorly-named-"bonus" was legal. See story linked above. It doesn't both me if democratic Attorneys General and congresspersons and the President want to pursue that angle. But that's not what they're using to attempt to score political points with regular folks.

But to say that AIG was mistaken for deciding that they were obligate to honor those contracts even under a bailout scenario is stupid. As a society, we want employees and employers and governments and parents and spouses and even dogs to honor whatever their contracts are with other beings on this planet.

the idea that they wrote contracts that were not in the interest of shareholders should not be surprising -- generally speaking, we aren't bailing out the companies that have a history of making prudent decisions! so if ANY company is likely to F up like this, i would argue its much more likely to be one of the ones we are bailing out!

I said many months ago (though not on my blog... probably a mistake) that I believe that no company should be too big to let fail. To be clear, you could interpret that statement two ways:

1) we should let any company fail no matter how big or important it is -- there is no company that could possibly be too big or important to let fail.
2) it IS possible for a company to be too big or too important to let fail -- WE JUST SHOULDN'T LET COMPANIES GET THAT WAY

if you believe in the market system OR if you believe that ginormous corporations do bad things, you can get behind me on this. I believe the market system usually works, but there are exceptions. For instance, we already force companies to disband when they have a monopoly. Nearly everyone accepts this intervention in the free market. It also seems clear to me that the free market doesn't work when companies do not fear the consequences of their decisions.

companies that are "too big/important to let fail" do not have to fear the consequences of their decisions.

therefore the free market doesn't work.

I say we pass a law to cause structured breakups of companies when they reach a certain ceiling of bigness/importantness. Defining that ceiling will be hard, but worth it.