The government has attempted to allay public outrage over payment of the American International Group Inc. (NYSE: AIG) bonuses by passing a specific bill taxing almost all of the bonus payments. However, several problems have arisen over this solution:
- The bill may violate the Constitution which prohibits laws targeting specific people.
- The nature of the statute bothers the business community which is rightly concerned that similar statutes if this one is deemed legal could be enacted to confiscate wealth on an arbitrary basis.
- This bill does very little to establish a workable framework to address similar problems.
Thus, the bill may solve one problem but creates even more in the process.
We are currently seeing this in the Madoff case. Several investors as well as employees may be forced to return money that was paid to them previously. No one is arguing this concept although they disagree with the ability to collect the funds.
Although the AIG bonus problem is slightly different, this framework could be modified to deal with these issues. However, it does require us to deal with AIG's underlying insolvency. We must admit this problem exists. Although the existing bankruptcy framework may cause too much market disruption, we must admit that the government's intervention represent a new form of receivership, not just a temporary liquidity injection.
Recognizing this insolvency is the first step toward solving the problem. By doing so, we have a framework which gives us an established structure to deal with it on a more logical and valid legal basis.
Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com. He is the author of Follow the Fed® to Investment Success and an expert on FreePassers™. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.
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Reader Comments (Page 1 of 1)
3-30-2009 @ 4:13PM
wdmurphy said...
Violating the constitution? Like when the government decided to tax cigarettes and targeting only smokers. What a joke this government has become.