As noted last night, I don’t think contractual bonus obligations have much standing in bankruptcy proceedings. But this article from CFO.com, sent along by TPM Reader JM, suggests that that’s only the start of it. The article is about the follow-on to the Lehman bankruptcy. But what it argues is that if creditors can show the the bankrupt institution was actually insolvent at the time the payments were made they can force the execs to cough up earlier bonuses as well. And remember AIG was in dire straights long before the US government stepped in and provided the lifeline last fall.
Late Update: As we know, AIG isn’t legally in bankruptcy, though it’s only been saved from that fate by a government bailout. But TPM Reader CW raises what is in many ways a more spot-on point: “Have Richard Shelby and Bob Corker held their press event demanding that AIG break their contracts with their overpaid Financial Products workers for their shoddy work?”
As noted in other contexts, beggars can’t be choosers. It’s really too rich for AIG to continually come back to the government asking for billions of dollars and tell us it’s tough luck when we ask for revisions that should be no brainers. The folks running AIG’s financial products division should be happy to escape this mess without criminal indictments. And that’s not hyperbole. When you look at what they were doing, foolish or high-risk behavior are inadequate descriptors. It really amounts to fraud.