Summary
-Contractual bonuses should not have been a surprise. - We are a country that needs to abide by rule of law (whether it is good or bad). - The media does a disservice by not explaining the story within context. It is more interesting to say "AIG paid billions in bonus from TARP money" rather that "AIG agreed to honor its obligations".
Analysis
Before investing in any firm, detailed due diligence is required. This helps frame an idea of the firm's liabilities and any other mine fields that may be encountered. Once this due diligence is done, an estimate of price and value can be determined and an offer made to reflect the risk.
What I deduce from the AIG bonus ruckus was that neither the Treasury nor the State Insurance Regulators did any sort of due diligence on the firm. Why else is a contractual bonus, which I would guess was signed a year ago, become such a surprise and big deal. Should the Treasury not have known about this liability? Should the Congress that makes it a habit to parade CEOs not have asked this question when they signed off on investing in the firm.
It is easy to blame the financial services firms since they are made out to be the villain. But the Congress and the Treasury needs to look inwards to see the root of the problem is them and their inability to understand business (or ethics for that matter).
