AIG Bonuses – Making Contracts Sacred

March 19, 2009

This contribution is from friend and colleague Lucas Graves, Columbia Communications graduate researcher, COI affiliate, and journalist extraordinaire.

Wherever you stand on the AIG retention bonuses, or the bank bailouts in general, it’s impossible not to notice how our ideological seams start to show in moments of high unsettlement. Here’s Thomas Friedman weighing in on why the AIG bonuses have to be returned voluntarily or not at all:

“We do not want the U.S. government abrogating contracts — the rule of law is why everyone around the world wants to invest in our economy.”

The rule of law creates an inviting climate for business. That sounds eminently reasonable, even obvious, until you consider the equally common claim — made by Friedman and countless others — that it’s precisely the lack of certain onerous laws that draws entrepreneurs to the land of opportunity from more rule-bound societies. (Like, say, France, Friedman’s favorite bête noir.) When laws seen as unfriendly to business do make it onto the books, the Chamber of Commerce and industry groups will argue quite openly for laxer, more “reasonable” enforcement, for instance of labor or environmental standards. Suddenly the rigidity of the rule depends on the nature of the law.

Meanwhile there are entire worlds of meaning in this beautifully parenthetical dismissal, from Andrew Ross Sorkin’s NYT column one day earlier, also arguing for the inviolable sanctity of contract where AIG bonuses are concerned:

“If government officials were to break the contracts, they would be ‘breaking a bond,’ Ms. Meyer says. ‘They are raising a whole new question about the trust and commitment organizations have to their employees.’ (The auto industry unions are facing a similar issue — but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.)”

An excellent if inadvertent reminder that contracts are legitimately broken all the time; that legitimacy is precisely the contested issue here; and that invoking the abstract principle of upholding contracts actually, and paradoxically, does the rhetorical work of claiming that in this case, as opposed to others, contract must be upheld. Likewise, it goes without saying that what constitutes legitimate bilateral “negotiation” is a matter of argument, not fact, as any auto worker can attest. No doubt “renegotiating” AIG bonus contracts a la Luca Brasi (i.e. at the point of a gun) would be perfectly acceptable to the bloodthirsty masses.

8 Responses to “AIG Bonuses – Making Contracts Sacred”

  1. josh whitford Says:

    Nice and appropriate post. It is shocking to see people obsessed with moral hazard when it comes to anyone making less than $100k/yr (and especially less than $15k/yr) suddenly not so concerned that perhaps the AIG bonus contract is an important place to draw a line because there are likely *many* such contracts across wall street. Do we really think all the bad apples were concentrated there? There is a very good post by Robert Waldmann at Angrybear – [http://angrybear.blogspot.com/2009/03/what-has-aig-been-doing-with-us-money.html] outlining the argument, which I’ll not repeat here. Simon Johnson has also been making the point. Looting is a problem.

    The comparison to GM is also important. That Sorkin piece is *atrocious*, and almost comical not so much in light of his reference to the GM piece in his discussion of AIG, but rather in reference to what he wrote at length about GM 3 months back. Maciej Ceglowski on Huffpost has the goods. [http://www.huffingtonpost.com/maciej-ceglowski/andrew-ross-sorkin-explai_b_176572.html]. Sorkin advocated that GM “be taken into bankruptcy so that its contracts with ‘gold-plated’ employees can be renegotiated, or nullified”. What a disingenuous ass.

  2. danielbeunza Says:

    I might agree with Lucas and Josh, but I think that taking sides on this controversy misses the most sociologically interesting point, namely, the terms of the controversy and what the discussion itself means. As Lucas points out, both perspectives are internally consistent. Josh’s comment, however, is an excellent example of how the debate is working out — through denunciation of the other side.

    What we have here, I believe, is a clear case of competing regimes of worth, a la Boltanski/Stark. I would call these the market regime and the administrative regime. The key, then, is to find pointers about what regime is going to prevail, how the switch happens and whether it can be predicted.

  3. marthapoon Says:

    Daniel! I’m puzzled. You seem to be promoting observation at distance… yet it seems to me that explicating and unpacking the logics of value is never neutral. To so is to *both* do sociological work and to participate in unfolding controversy.

    I don’t see Lucas / Josh as taking sides so much as they are shifting debate by opening up and actively generating alternative viewpoints.

    This is fully in line with Boltanski and Thevenot’s model of how regimes of worth work – as public resources and shared conventions that can be endlessly combined ‘in action’ towards a shared resolution, in ways that are contingent and never predictable in advance…

  4. josh whitford Says:

    Daniel,

    I’m confused too. I don’t mind being “accused” of taking sides because, well, I purport to being a Deweyan pragmatist, therefore reject positive/normative dualism, and thus take sides as I make judgments. I am taking one. And I do think that Simon Johnson is right. Those contracts show that there is “tunneling” going on, and that is a very scary thing. Individual rationality is killing collective rationality. Again. Count me among those who are worried about a second great depression.

    But I don’t see where Lucas post shows the “other” side to be internally consistent, unless that consistency is simple class allegiance. The very same people have taken exactly opposite positions on the government’s obligation to renounce its right to abrogate contracts (and yes, they have a legal “right”), and the justifications they give for those opposite positions are *extremely* thin.

    With that said, I do agree that it is essential to figure out where things are going to go (in my case, bc as a citizen I think it my obligation to hopefully influence them in some small way). But that’s also precisely why I think it is so important to make clear when illustrious commentators are — to put it generously — being disingenuous.

    And with *that* said, I’d love it if you’d fill out a bit what you mean in this context by the market and administrative regimes.

  5. marthapoon Says:

    Oh boy. I’m afraid between me and Josh we’re going to have Daniel running on all sides!

    Let me clarify my own thoughts: Isn’t the point that Lucas raises about the nature of contracts as being inherently renegotiable a way of employing, not an alternative order of worth, but rather the *same* order of worth as defenders of the bonuses to argue against their legitimacy?

    The political position works by showing that commentators such as Sorkin invoke the nature of contracts differently depending on whose contracts they are discussing (Josh calls this class bias). So it seems that politics can actually be done (and not avoided) by calling out this inconsistency, by calling for a symmetrical analysis a la Boltanski and Thevenot…

  6. lucasgraves Says:

    I think Daniel’s right that the really fascinating question is one of consistency within competing regimes of worth — and of what sort of consistency matters within a regime of worth.

    Assume for argument’s sake that we haven’t done Sorkin any gross injustice by stating that he’s 1) for upholding AIG bonus contracts, and 2) for finding a legal way, like bankruptcy, to void or redraw GM’s contracts with unions. Now that’s *effectively* consistent within a market regime of worth, in that the apparent contradiction dissolves away: People who consider themselves “pro-market” or “pro-business” can hold both positions simultaneously without feeling that they are contradictory. (I suppose B&T would say they share “modes of evaluation” and “format of information,” etc., though I’m not sure whether Sorkin fits into the market or the industrial order, or both.)

    But that’s emphatically *not* to say that Sorkin’s two positions are consistent in any formal sense, which would require qualifying to the point of absurdity: “Contracts must be upheld in cases where the precedent of violating them is more deleterious than the particular impact of not violating them,” or some such. Nor is it to say they are consistent in a factual sense, which would demand information we don’t have about the relative accuracy of various fears and assumptions — we don’t know whether clawing back AIG bonuses will drive talented people from troubled firms or toward safer shores. Outcomes valued highly according to a market regime of worth may ultimately prove detrimental to the firms promoting them, and certainly to “the market” or “the economy.”

    I take Martha to be saying that (per B&T, indirectly) it’s the first kind of consistency that matters: Consistency is defined precisely by the ability to provide a coherent resource for resolving contradiction and doing work in the world.

  7. danielbeunza Says:

    Guys, I feel like titling this comment in the 19th c. way — “in response to my critics.” I’ll start by conceding: I agree with Josh that us academics can and maybe should take a position. Getting back to Martha and Lucas, the multiple orders are there.

    I saw it last week when, at a training session on Wall Street, the first two speakers had, in their second powerpoint slide, a quotation from Obama. Wall Street learns fast. At the risk of sounding too cute, I’d venture to say they’re probably learning things like (1) “net present bailout” calculation and (2) the BaR (Bonus-at-Risk) formula.

  8. euandus Says:

    I saw Andrew Sorkin on Charlie Rose last night. I think he is weening himself off being a Wall St apologist as he too has come to realize the bankers’ folly (presumptuousness) in fighting attempts to regulate the industry so the crisis of 2008 doesn’t happen again. In case you are interested, I have just posted a piece based on his discussion.


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