RoR: Forum

Tibor,

When you say that "the company's authority to pay these bonuses has diminished..." which is in paragraph 4, you are making, I think, a concession to the government's opposition to the bonuses that is unwarranted and unjust.

Saying that the contracts for remuneration that were in fact drawn up and signed might have been drawn up differently doesn't change the facts of the actual situation. Those contracts are valid. The company doesn't have the right to renege on them, even if it wishes to make such a concession in order to receive government bail-out money.
The company's obligation to pay those bonuses hasn't diminished, and that is what matters.

Mindy

Post 1

Saturday, March 28, 2009 - 3:25pm

My point is that once governmental interference, including bailout funds and subsidies of any sort, is accepted, the full authority of the company to set the terms of the bonuses will diminish. That's because the initial terms are usually made without such interference in place but once the interference is there, the agency status of the firm has changed. It is no longer independent, at least not morally.

Post 2

Saturday, March 28, 2009 - 4:12pm

I would say that the moral agency does indeed diminish, for several reasons:
1) They are taking bail-out money out of a claim of dire need, and that is contradicted by a bonus, which implies a flushness they don't enjoy.
2) The government became the agent for the new owners - the taxpayers - who hold a significant equity position. And it should have been clear that the new owners would not want executive bonuses to be paid.
3) They failed in the market place, and then tried to get others to pay for their mistakes, and to get bonuses on top of that - you can't be issuing moral claims to have your cake and eat it too.
-------
That said, I believe that all the uproar is either anti-capitalist noise, ugly envy like Tibor mentioned or an attempt to divert attention from the real villains- those in government. Also, as has been pointed out elsewhere, some of the people who got bonuses had nothing to do with the part of AIG that failed and weren't the ones asking for bail-out funds, some contracts predated the bailout and the outrage. Plus, congress should never pass ex post facto laws, bills of attainder, use taxes as instruments of punishment, or violate contracts as such.

In the last few months we've see our nation of laws (which Bush did quite a bit of damage to) disappearing altogether in parts of the national level.

Post 3

Saturday, March 28, 2009 - 4:26pm

I think I understood that, Tibor. But I don't see how you prove it.
A contract can't be unilaterally altered, even if it is the government that would like one party to that contract to do the altering.

You say, "to set the terms of bonuses," as if there were terms being set following the government's entering the picture, but aren't we talking about terms that were set and finalized before the government entered the picture?

Once government money is taken, the rules for further contracts for salaries and bonuses may change. The company may thereafter have to consult the government in order to contract to pay a bonus, but that doesn't affect existing contracts. The authority to contract to pay bonuses versus the authority and responsibility to pay contracted bonuses are quite different.

Once government money is taken, the company is not independent. The morality which requires existing contracts to be honored continues undisturbed, however. The addition of the government as a "partner" certainly doesn't introduce some superior moral claim. If anything, it is the opposite, as long as one holds that the proper role of government is to protect individual rights.

Post 4

Saturday, March 28, 2009 - 4:36pm

Whether they are lying to the government about their need or not, a lawfully created contract to pay an employee x bonus based on y condition is as sacred as your own right to life.
The existence and conditional facts of these salary bonuses are not secrets to the government agents who decide to buy into the company. If it were a matter of discretionary bonuses paid by some employees to others, that would be a very different matter. The implication as to their being flush isn't logically tight, and is irrelevant to contractual obligations.
The new owners would not like the bonuses to be paid?! I'm a little shocked at that. The "new owners" bought the contractual obligations of the company along with everything else. Such naive new owners as suppose their wishes trump legal contracts should keep their investment money in their pocket, I think.
Again, the cake-and-eat-it-too reference is gratuitous, isn't it? Unless you aren't talking about contracts...c o n t r a c t s?

Post 5

Saturday, March 28, 2009 - 5:20pm

Mindy, as I understand it (and I could be wrong) some of the bonuses are discretionary and some are contractual. Some were initiated post-bailout and some were pre-bailout. And it appears that some of the contracts were written in great haste at a time where the intended recipients were being given what in effect were golden parachutes as gifts rather than a contract where consideration or at-risk actions were involved - and, that they could only be funded out of taxpayer funds at the time they were put into play ('contracts' like that are questionable and might not be valid contracts at all) - But these details aren't anything I want to debate since we agree on the basic principles.

As to AIG's level of independence... Legally, it doesn't change between owned by the public via pre-bailout stock ownership, and post-bailout stock ownership by the government UNLESS the government makes rules with force of law regarding bailout recipients, or makes bailout conditions that have the force of a contract on the company when it accepts the money. But the perception is that it isn't as independent which is what congress would like... to intimidate companies, and to grease the way to more control, and to complete a transition from a nation of laws to a nation of czars.

I could say, "If a company takes bailout money, then they should do x, y, z." but, government shouldn't give out bailout money in the first place - that is where the problem starts.

Post 6

Saturday, March 28, 2009 - 5:40pm

I see, Steve,
For me, I am speaking only about pre-existing, legally sound, contracted-for bonuses. As to how sensible or extravagant they were, that is irrelevant.

This vague new status I find in your and in Tibor's posts, of a company that has received government money, and thus may, must, or cannot do things otherwise prescribed by our laws is very troubling. It isn't "independent," it has "less authority," and somehow it is "morally" changed.

I suggest that there is no room under our constitution for such things.
What seems new and different here just needs to be looked at analytically and correctly categorized in the familiar, constitutionally-recognized categories of property, contract, etc.

(Edited by Mindy Newton on 3/28, 5:47pm)

Post 7

Saturday, March 28, 2009 - 6:45pm

Mindy,

I cheer you on for supporting the sanctity of the contract and constitutional law. We have no disagreement there. If I have indicated otherwise in this or that AIG instance then I'm wrong, and it wasn't my intention, because I support the sanctity of the contract and strict constitutionality.

There ARE moral conditions that adhere and are apart from law and from the constitution - if a CEO behaves as a hypocrite, then he loses moral strength and that has nothing to do with law. If I behave like an ass I lose moral stature. A company that fails from bad decisions and incompetence and then takes bailout money is like a bum when it comes to moral authority. That remains so even though it doesn't change their standing before the law. What is it you don't understand about that?

You said that I claimed that a company that took bailout money "...cannot do things otherwise prescribed by our laws..." I've NEVER said that. They answer to the law and that includes answering to their owners - same as before.

You said "Once government money is taken, the company is not independent." Then you accused ME of saying it was not independent, but that isn't what I said. I said, legally, it's independence doesn't change unless government passes laws or attaches contractual riders to acceptance of bailout money.

Am I wrong to think you aren't reading my posts carefully enough on this thread?

Post 8

Saturday, March 28, 2009 - 7:12pm

Did you notice I was referring to things that you or Tibor had said?
I used the "independent" description to follow the language of the particular point I was responding to. That the company wasn't independent of the government, if the government either invested in it or gave it money. That this independence implied some alteration of its legal obligations was an implication of yours and Tibor's characterizations of "moral agency" and "authority," etc. which were your reasons for violating contractual obligations once a company took government money.
A company the government owns part of isn't independent in one sense of the term. Your formulation about the government's passing laws or attaching riders...rules with the force of law, or conditions with the force of a contract... which several things would alter the independence of the company, is a second sense of the term.

As to the distinction between morality and legality: really!

Post 9

Saturday, March 28, 2009 - 8:24pm

Mindy, Mindy, Mindy...

"As to the distinction between morality and legality: really!"

I have the moral right to keep the money I earn, but the government has the legal right to take it away from me. You don't think there is a difference? Really? I always thought that there could be many things that are immoral but not illegal, and things that are illegal but not immoral. Some of the people on Wall Street are moral sleazes, that doesn't mean I want to have laws passed that violate contracts or government czars telling them what to do!

You said, "That the company wasn't independent of the government, if the government either invested in it or gave it money. That this independence implied some alteration of its legal obligations was an implication of yours and Tibor's characterizations of "moral agency" and "authority," etc. which were your reasons for violating contractual obligations once a company took government money." [emphasis mine]

First of all, I NEVER said I favored breaking any valid contracts. Second, I said that a company was just as independent under the law after the bailout as it was before the bailout UNLESS the government passed laws specific to bailouts (which I don't advocate) or unless they attached conditions to acceptance of the bailout - which is normal for loans. You keep trying to paint me as someone who advocates fascist controls over companies and I am not!

For this thread, it might be best to quote my statements that you don't agree with.

Post 10

Saturday, March 28, 2009 - 9:24pm

Steve, I think you and I potentiate one another's tendencies to misunderstand. ;-)
I was going for: Give me a break, Steve, surely you don't think I need a lecture on the fact that the realm of morality is larger than that of legality.

As to your being willing to violate contracts, I thought that was what you meant to say. "If a government takes bail-out money, then they should do x, y, z..." If that doesn't mean something different than what they would have done in the first place, regarding contractual bonuses, what does it mean?
"the moral agency" of a company diminshes when they take bail-out money..."
"the government became the agency for the new owners..." this layers company, new owners, and government as agent for them, plus or minus "laws or contractual riders," etc.

Tibor is arguing that existing contractual obligations are made void by government bail-outs. You chimed in with agreement (post 2.)

I'm glad you uphold all legal contracts, including those by companies that accepted government funding...does that include when there were contractual riders???? If not, what was the point of those contractual riders, etc.???

Don't tell me how to think or how to write, you're not up to it.

Edit: If the government offers the company bail-out money, but attaches a "rider" that existing, legally contracted-for bonuses were not to be paid, and the company accepts it, the bonuses are still owed. How does your "rider" make any difference, anyway? Did you know that was what Tibor and I were talking about?

(Edited by Mindy Newton on 3/28, 9:29pm)

Post 11

Sunday, March 29, 2009 - 12:31am

Mindy,

I said that you needed to read what I wrote more carefully. I wrote, "I could say, 'If a company takes bailout money, then they should do x, y, z.' but, government shouldn't give out bailout money in the first place - that is where the problem starts."

You come along and write, "As to your being willing to violate contracts, I thought that was what you meant to say. "If a government takes bail-out money, then they should do x, y, z..."

I don't believe in violating contracts! What I wrote does not call for violating contracts!

You said that my post #2 called for violating contracts. All I can say is that you aren't reading what I wrote. As I pointed out, "some of the people who got bonuses had nothing to do with the part of AIG that failed and weren't the ones asking for bail-out funds, some contracts predated the bailout and the outrage. Plus, congress should never pass ex post facto laws, bills of attainder, use taxes as instruments of punishment, or violate contracts as such."

I asked if you would quote anything of mine that you disagreed with because you have been inaccurate in relaying what you think I said. If you don't want to do that there is no point in my saying over and over that I am not in favor of violating contracts.

You said, "...your riders..." I have NEVER mentioned "riders." I do not believe the government has the right to force anyone to violate a lawful contract. I'm really getting tired or having to say the same thing.

As a purely personal aside, you seem to be in an awful mood tonight and not your usual self. I have enjoyed our exchanges in the past.

(Edited by Steve Wolfer on 3/29, 12:35am)

Post 12

Sunday, March 29, 2009 - 10:26am

No, you need to read what I write more carefully!
No, you!
No, you.
Take it to Ed Thompson, if that's the way you want to discuss things.

Post 13

Sunday, March 29, 2009 - 11:08am

If I promise payment to someone but it turns out my funds were stolen or are being stolen, so what I have promised to do I had no authority to promise, the promise becomes void. Had the promise stated, "I will pay only with funds that are mine," the promise could be fulfilled with funds I do own (unless they have become so mixed or entangled with the stolen funds that no separation is possible). Similarly with contracts. (There is in the law a concept, namely, unconscionability, that could cover these kinds of cases.) More generally, contracts aren't cast in stone. There are explicit and even implicit conditions that determine whether they are binding.

Post 14

Sunday, March 29, 2009 - 10:58am

Dr Machan, I really enjoyed this essay, and thought you were spot on in your observations. And I especially enjoyed how you closed it out, when you said �� to my dismay, that even in the West, even in America, too many people are green with envy and would rather work on bringing down their fellows than getting up there themselves. Shame on them all!� Bravo!

I do have one quibble, and a very minor one at that. My minor quibble is with your statement, �Why all the fuss about the high pay executives get so long as they aren't stealing it? Makes you sick to see all these people fret about how well their fellows are doing. Oddly, in sports this attitude doesn't appear to be dominant, so when Tiger Woods is doing well people aren't demanding that he be brought down and make room for inferior golfers. Or with Coby Bryan or Michael Phelps.�

I�ll grant you that these persons are not being held to the same level of scrutiny and hatred as successful businessmen, but have no doubt that professional athletes are also subject to a great deal of the same envy. I can tell you from first hand experience (as a diehard sports fan), that most people believe that these men are paid far too much, and their salaries are held very much against them by the average person. Even among my fellow sports fan friends, mine is always the lone voice among them that does not bemoan and shake his head with anger at their salaries. And bear in mind that the criticism I just described is coming from their most devoted fans. And then there's the non-sports fans. Just listen to them after they learn that a Kobe Bryant received a multi-million dollar contract; the finger wagging disgust towards him is near hysterical. I can�t count the times I�ve heard a person say something like, �It�s terrible that teachers get paid so little, while a dumb steroidal fool like Bryant is paid millions for bouncing a ball. Something should be done about this; they should stop it and put a cap on how much these idiots make�.

Trust me; there are plenty of folks that would love to see Kobe Bryant and Tom Brady get their �tall poppies� trimmed down.

Having said that, there is no way I�m going to end this post to you with a criticism, especially such a minor one. So let me end by thanking you for all the work you have done over the years to advance the cause of individual freedom; for your essays, articles, lectures and books have been a tremendous value in that cause.

Howard

PS: I really enjoyed your book, Generosity: Virtue in the Civil Society � very interesting reading.

(Edited by Howard Campbell on 3/29, 1:41pm)

Post 15

Sunday, March 29, 2009 - 12:20pm

Tibor,

Certainly, promises aren't contracts, under the law (though, morally, they are.) But if I restrict what you describe to legal contracts, I can say that I dispute, and claim that Objectivism disproves your assertion.

You wrote: If I promise payment to someone but it turns out my funds were stolen or are being stolen, so what I have promised to do I had no authority to promise, the promise becomes void. (post 13)

Accounting complications and changes in one's fortunes--for an individual or a company--do not change moral obligations, nor, properly, legal ones.

I am puzzled here, and in your previous post that argued similarly about retroactive effects of a person's or a company's changing situation. What premise leads you to propose such effects? Every contract is forward-looking. People who enter into contracts are not ambushed by the fact that their expectations didn't work out. (That is one of the most important reasons why children aren't allowed to make contracts.) The fact that a contract represents a commitment in the face of unknowns is just one manifestation of the fact that life, being a process, is temporal. That we grasp this fact, and embrace it in our best efforts to live well, is a tribute to man. That man forms contracts is part of his glory.

If I understand you on this point, you would undo the aspect of contracts that they are binding. Which is to undo contracts altogether, logically. Contracts (or promises) we can forget about if things work out to present great difficulty for us in living up to them are not thereby voided. If that option were openly recognized, why in the world would anyone ever make either one?

Your formulation, in the quote above, that what you promised to do you had no authority to promise, applies to certain circumstances, but not in the ones to which you apply it.
A con man may make a promise he has no authority to make, if he poses as someone else and the victim believes she is being promised something by the person who does have the authority to make such promises. That's convoluted, but, actually, familiar to us.

As you are using it, it seems that you are saying someone who actually had the authority to make a certain promise, then, when he loses the practical ability to fulfill it as he envisioned, loses, retroactively, the authority he actually did have when he made the promise. That seems entirely arbitrary, highly pragmatic, and, frankly, unscrupulous.

As to contracts's being cast in stone: We want them to be! If the constitution and judicial system protect individual rights, legally executed contracts can rely on our stony determination to uphold those rights, by upholding their terms (the terms of the contracts.)

I know of the issue of unconscionability, but I don't know how it is framed conceptually, nor how it is applied in cases of the day. Since we are talking about contracts that were legal in the first place, wouldn't that be a moot point?

Edit: This post is unedited. While I spent at least 20 minutes re-reading and editing it, occassionally doing a new "preview," the version that posted is the original, unedited one. I'll re-edit it another day.

Mindy

(Edited by Mindy Newton on 3/29, 12:35pm)

Post 16

Sunday, March 29, 2009 - 1:54pm

A well meaning, friendly reminder to members from the closest thing we have to a TOC at RoR:

"Vendettas are also forbidden. Occasionally we'll find someone who gets angry in one thread leaping from thread to thread, hurling insults and trying to move every conversation back to that one. This sometimes manifests as random insults towards a person who's not even participating in that thread."

Post 17

Sunday, March 29, 2009 - 2:33pm

The debate about the justifications for breaking or honoring contracts in a company that receives public money in order to continue its existence reflects just one of the many unintended consequences of government interference in the markets. In a free market a failed company like AIG would suffer a similar fate to that of ENRON. Legal contracts for executive compensation and employee bonuses become moot since the money to pay them doesn't exist. I'm not very familiar with bankruptcy laws, but I believe that bondholders usually have first dibs on any money resulting from the sale of the company's assets. AIG was a failed company. If nature were permitted to take its course, employees and company executives not only would not have received bonuses, they would also have been unemployed. The government bailout may have muddied the legal waters concerning the bonus contracts, but not the moral waters.

Post 18

Sunday, March 29, 2009 - 2:59pm

Teresa,

It took me a while to figure out why you would post that on this thread. I take it you mean me, and that you mean my reference, in post 12, to Ed Thompson.
If that constitutes pursuing a vendetta, you've got a problem on your hands, because I will make true and valid statements whenever and wherever I wish, including ones that refer to Ed Thompson, or other members of this forum. Don't forget, you have to prove any such statement is irrelevant to the context in which it was made. Do you think you can do that, in this precise instance? In any instance?
If you are accusing me of prosecuting a vendetta against Ed Thompson, I challenge you to define your terms and make your case.
If you are actually expressing the official opinion of RoR, kick me off!

Mindy

(Edited by Mindy Newton on 3/29, 3:28pm)

Post 19

Sunday, March 29, 2009 - 3:20pm