“NOT SO FAST, YOU GREEDY BASTARDS!” was one of the iconic headlines of the financial crisis. Taking up the whole front page of the New York Post on March 18, 2009, it referred to the $165m bonus pool that AIG was intending to pay out, despite having taken taxpayer money in the biggest bailout in history. If there was one thing that public opinion was agreed upon across the political spectrum, it was that to pay bonuses at AIG, and particularly at its Financial Products unit, would be an outrage.
It now transpires that there was a problem here, however. A large proportion of those AIG bonuses were deferred compensation from previous years, and the employees were legally entitled to them. Ten years later, a British court has confirmed this. This week it ruled that former AIG-FP employees are entitled to $100m of deferred compensation.
What’s even more bizarre is that the judgement was actually an appeal, from a ruling last November on the plain contractual language of the compensation scheme (which was partly meant as a retention scheme to stop staff from leaving when the trouble at AIG started). In the appeal, AIG FP argued that, given the “greedy bastards” headlines and the pressure the company was under from politicians and regulators, they would probably rather have declared bankruptcy at the time than paid the bonuses if they had known they couldn’t legally wriggle out of them.
This argument did not get far in the court. It was described as “most unseemly” by the judge, who added the word “abusive” to make sure that his point was understood. AIG is still appealing, but they’ve lost twice on this now, and lost a similar case in France, so it’s hard to fancy their chances.
AIG's isn't the only financial crisis bonus case going on – Credit Suisse are also challenging the UK’s bonus tax, and while people like the Labour Party's John McDonnell are calling the bank's move “outrageous,” Credit Suisse might actually win.
So bashing bankers isn't so easy after all. Ten years after the financial crisis, measures that were taken at the time are emerging as failures of the rule of law. Although it's paradoxical for someone standing in a massive smoking crater of taxpayer’s money to be asking for a special reward, the word “bonus” is a misnomer – most of the 'bonuses' were deferred revenue commission and back pay. Not paying them amounted to confiscation.
Disrepecting the rule of law is risky. If “the will of the people” starts to be treated as a kind of higher law, then dangerous things start to happen in a civil society. The people who were excoriating AIG bonuses back in 2009 might be appalled by Brexit and Donald Trump today, but it could be argued that they set the ball rolling way back then.
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