Many elected members of Congress are lawyers.  President Barack Obama is a lawyer.  So why then do all these lawyers fail to comprehend that AIG employment contracts which guarantee bonuses must be honored?  The answer is they know perfectly well these contracts must be honored, but that isn't the sexy answer to assuage a disgusted electorate, so they set aside their lawyerly training and vow to block guaranteed bonuses.  It is safe to assume that most of these employment contracts were written well before melt-downs and shock sums handed out by the government in the form of bail-outs.

Well, in legal circles when you refuse to honor a contract, that's called breach of contract.   Guess what happens when an employer breaks the contract in bad faith?  The contract holders sue.  Guess what happens when they win?  They get awarded compensatory damages on top of what's owed to them.  Typically, the penalties for breach of contract are three times the amount in question (depending on a lot of stuff, but use that as a rule of thumb).

So if the Government, which now owns about 80% of AIG, breaches these employment agreements, the employees will sue and walk away at the end of the day with their bonus, plus three times more, or four times their original contract amount.  Perhaps all the lawyers on Capitol Hill are cynically gaming the system, because by the time all the lawsuits and appeals are done with, anywhere from 5 to 10 years will have passed, which would make this controversy old news by Washington standards.

Some politicians are demanding that the people employed by AIG who have these contractual guarantees should be fired.  Well, gee whiz, employment contracts that guarantee things like bonuses, also guarantee severance, which at that level, will dwarf the guaranteed bonus.  So these AIG fat cats get their bonuses, and then get paid whopping severance on top of it?  Good government?  Or good grief?  Another anecdotal example that government meddling in business almost always results in a great big mess.

The real problem here is systemic, and it has to do with the gradual introduction into American society of the concept of entitlement.  The idea of a guaranteed bonus is inherently contradictory.    Corporate fat cats have developed a mentality that they are entitled to bonuses regardless of company performance, hence the advent of the contractually guaranteed bonus.  While some corporations still tie bonuses to corporate performance measurements, many companies simply do not.  It's basically the same thing as tens of millions in this country walking around thinking they are guaranteed a social security pension plus retiree health coverage.  It's all about entitlement.  Entitlement is wrong headed and self-defeating, and the AIG example of the guaranteed bonus, is illustrative of the much much larger problem in the US.  We desperately need a national attitude adjustment.  We are entitled to the protections afforded by the Constitution of the United States of America and the Bill of Rights.  The rest, we should EARN.

Grin and bear it - pay the bonuses, because it's the cheapest way out at this point.