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The AIG Debacle
Are We Losing Our Morals?

The great Jewish philosopher Maimonides wrote that a person who has suffered misfortune feels less miserable when confronted by a person in a more calamitous situation than himself. Similarly when dejected people see others who are more privileged than themselves, their sense of despondency is increased. People who are unsuccessful find it difficult to observe the success of others. One of our challenges is to overcome this negative envious trait and be happy for others even if we personally are experiencing setbacks.

Of late, it seems to me that Americans, on the whole, have failed in rising to this challenge. As the financial crisis was unfolding last summer, workers at American International Group's (AIG) financial products division were offered bonuses for remaining in their jobs for a specific period of time. At the end of last year, AIG became contractually obligated to pay those bonuses. A public outcry ensued when, this past week, it came to light that one hundred and ninety million dollars worth of these bonuses were paid out. This culminated this past Thursday with the Congress passing a law that slaps a ninety percent tax on the bonuses paid out to employees of AIG.

Whether it was fair for these employees to receive bonuses is irrelevant. As children we all learned that life is not fair. Whether they deserved the bonuses is also irrelevant. Even the fact that these bonuses were given to people who helped create this financial mess is not important here.

What is significant here is that there was a contract which obligated AIG to pay retention bonuses to these people. It was the Torah that introduced the concept of private property rights and contractual obligations to the ancient world. Western law has in many ways been inspired by that ancient code. The knowledge that property rights and contractual agreements can be enforced is the backbone of any successful economy and civilized society.

Honest and decent people abide by their contracts unless there is a mutual agreement to do otherwise. Backing out of a contractual agreement because its obligations became unpopular is deplorable. AIG chief executive Edward Liddy did the right thing in paying these bonuses. It was absolutely wrong and unethical for congress to use their legislative powers to essentially void contracts that were made in good faith. The fact that this was done simply because the contracts became unpopular in the eyes of an envious and indignant public makes it all the more abhorrent. This is a dangerous precedent. Why should anyone trust a contract if, post fact, Congress can use its legislative powers to steal money that was contractually obligated to be delivered?

Ultimately I believe that the public outcry against these bonuses is derived from envy and resentment against those making more money in a time when many are losing their jobs and homes. But instead of pandering to this character flaw, politicians should be standing up for what is right and honest. We need to remind them that following public opinion is not leadership. Real leaders lead they don't follow.


Reader Comments
Latest Comments:
Posted: Sep 4, 2009
AIG's bonuses
Kudos to Pincewki, M. England and Anonymous, J. Israel.
They got this sooooooooooo right. Taxpapers should not have to pay their bonuses.
It's like the Captains of the Titanic putting on dresses and getting into a lifeboat.
Posted By stellafe, Santa Fe, NM, usa

Posted: Apr 1, 2009
Paying an Employee
I am astounded at the anger people have towards a company making good on a promise to pay its workers! People need to get paid. That is how our society functions. Can you imagine your own hardship if you worked expecting to be paid and the company refused to pay you. I am sickened by this witch hunt. Rabbi Brackman has good insight -- sometimes the truth hurts!!!
Posted By Anonymous, charlotte, nc

Posted: Apr 1, 2009
AIG Debacle
Rabbi Brackman I think you are way off the mark.
1)There is no basis for you to suggest that halachically there is a valid contract.
To be a valid contract all the terms must be adhered to. It must be implicit and inherint within the terms that the receipients may not act contrary to the benefit of the company. If they were involved in the potential downfall of the company they have acted contrary to the terms and the contract is null and void.
2)the company was in a state of bankruptcy and therefore any such obligation would fall within the available funds of bankruptcy. Consequently, if the government has bailed them out then it has every right TO TAKE THE LEAD and denying the payment of such bonuses until all other creditors are paid in full.
3) To suggest that the outcry has to do with envy and resentment of people making more money is an insult which requires your deepest Teshuvah on Yom Kippur.
Posted By Chaim Pinczewski, Manchester, England

Posted: Apr 1, 2009
I do not agree
I am sorry, but if the company is about to go bankrupt, all contracts become void. If the government bails out the company, then the government has complete choice about how that money gets to be spent. It is true that it would have been better stipulated up front by the government specifically how that money could or could not be spent. And it is still taxpayers' money that is paying those millions of dollars in bonuses. That is not envy. If i work hard for the little money i have, and a portion of that money goes towards what would have been void contracts for people who are responsible for what can be seen as amoral activtites, it is understandable that i am furious. THAT is abhorrent act.
Posted By Anonymous, Jerusalem, Israel

Posted: Mar 24, 2009
financial crisis & suffering
This is such a hot topic. Everyone has been effected by the economic meltdown. Many factors caused this problem. We should not make a scapegoat out of anyone or any entity. The tax payer money which has been loaned to the banks does not give the government the right to dictate how these company's should do business. We are very close to crossing the line into socialization. Socialization does not work, look at RUSSIA as an example.
People need to be paid for working. Some are paid more than others. The word bonus in the financial sector is not a correct use of language. For 99% of the workers who are living paycheck to paycheck their "bonus" is their salary - not extra money. It is how they pay the mortgage & buy food to live!
Business ethics are important. Adhering to a contractual obligation is valid and ethical. Paying employees is a good thing and will help our society to recover.
Posted By Anonymous, charlotte

Posted: Mar 23, 2009
Well said
I agree with Rabbi Brackman. Good article.
Posted By Anonymous, charlotte, nc

Posted: Mar 23, 2009
Levi is right
They had a contract.

G from Fair Lawn writes that these people were engaged in financial fraud. If this was true then they would or will be in jail. Obviously not every employee at AIG was a fraudster and all employee contracts should not be voided because someone, someplace committed fraud.

Sara from Brooklyn writes that contracts are renegotiated all the time. She is right that they are renegotiated, however that is with the agreement of both parties. The union agreed to this contract negotiation. Regarding the apartment example, if there was no agreement and there was a contract stating otherwise, the home buyer could and would sue the bank for breach of contract. This agreement did not happen yet with both parties in the AIG case.
Posted By Anonymous, NYC, NY

Posted: Mar 23, 2009
levi brakman - self righteous English banter
I don't think the issue involved is whether it was moral for AIG to pay the bonuses, or whether AIG was obligated or not obligated to pay the bonuses, but rather whether the hard-earned tax money of struggling Americans should have been used for it. Does Rabbi Brackman know any Americans who are personally struggling to keep their houses from foreclosure? Does he know any americans who lost life-savings in investments in the past few months? I am not sure why this article made it onto the home page of Chabad.org. It is despicable and insensitive to hundred of thousands of americans literally struggling to keep afloat. how dare you.
Posted By Anonymous

Posted: Mar 22, 2009
AIG
Contracts are broken all the time, so your argument that these people who helped destroy the world economy, who increased human suffering, who are causing death from poverty, malnutrition and lack of health care should be paid their contractual bonuses misses the point.

The point is that these people engaged in financial fraud and are being rewarded for committing fraud.

I feel for those who are loosing their homes, and jobs, not those who engaged in the financial equivalent of rape, loot and plunder.
Posted By G. Konecky, Fair Lawn, NJ

Posted: Mar 22, 2009
contracts are only binding on the powerful?
The problem is that it is disingenuous for people like Laurence Summers to come forward with this argument - that we have to respect the law, in the case of AIG. Contracts are renegotiated all the time. I was just reading about people who agreed to buy an apartment at a certain price, and were told that they were pre-approved for a mortgage as long as they came up with, say, a ten percent down payment. Now they are being told that they must have twenty percent, and if not, they lose their deposit - sometimes their life savings. So what about their contracts? What about General Motor's contract with the union, which they recently renegotiated in light of GM's financial problems? The problem is that the "rule of law" only seems to apply to the rich and powerful - for the poor and struggling, contractual obligations can be renegotiated and they just have to understand that we're facing hard times. Fairness IS the issue.
Posted By Sarah, Brooklyn, NY


 



By Levi Brackman   More by this authors...  |   RSS Listing of Newest Articles by this Author
Rabbi Levi I. Brackman is director of Judaism in the Foothills and the author of numerous articles on issues of the day.

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