AIG, bonuses, and the Constitution

Dean Kalahar
March 18, 2009

Are you feeling angst over the AIG bonus payout, and do you believe the Congress should do something about it? If so, some Constitutional wisdom is in order to clear your head.

First, the role of government is to protect the people and their property. This fundamentally includes judicial enforcement of contracts. The bonuses in question with AIG were stipulated in contractual agreements. Whether you feel the bonuses were outrageous or not, the government’s role is to enforce contracts and protect property rights. In doing so, the free market functions more efficiently, a fact that has been largely ignored, yet, is sorely needed in these tough recessionary times.

Some in Congress are looking for ways to get back the bonus monies through legislation. Maybe they should read the Constitution which states in Article 1, Section 9 and 10 respectively, “No Bill of Attainder or ex post facto Law shall be passed.” And the states are prohibited to “pass any Bill of Atainder, ex post facto Law, or Law impairing the Obligation of Contracts,”

In regard to these provisions, what did James Madison say in Federalist #44 to clarify the founder’s beliefs, "Bills of attainder, ex post facto laws, and laws impairing the obligations of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. . . The sober people of America are weary of the fluctuating policy which has directed the public councils.~They have seen with regret and indignation that sudden changes and legislative interferences, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and less-informed part of the community."

In addition, the court later ruled that, "The Bill of Attainder Clause was intended not as a narrow, technical prohibition, but rather as an implementation of the separation of powers, a general safeguard against legislative exercise of the judicial function or more simply - trial by legislature."~ U.S. v. Brown, 381 U.S. 437, 440 (1965)

If this is not enough to replace angst with constitutional principles, another question needs to be asked. Are the bonuses really “outrageous in size?”

Mark Perry points out that out of the nearly $200 billion in taxpayer funds that were pumped into AIG, the $165 million in bonuses represent .0825% (about 1/12 of 1%) of the bailout amount. In other words, $1 in bonus money is being paid out for every $1,272 of bailout money received by AIG.

It seems that concerning the economy, everything Congress touches turns into a disaster. To which, in an act of utter contempt for the American people, Congress asks for even broader powers to fix the problems they created. Remember, these are the same people who swear to you that they know how to fix the recession better than the principles of free market capitalism.

The solution for Congress and the President to the AIG bonus question is to simply let it go, and stop trying to manage a 15 trillion dollar economy of 330 million people. If they feel the need to do anything, they can all agree to do nothing. God help us all.