On Sunday, Larry Summers explained to America why the administration had to let AIG give bonuses to bankers who blew the firm and the taxpayer to smithereens: Because contracts are sacred.
Perhaps Larry will return this week to explain why the same sanctity does not apply to mortgage cramdowns.
Joan McCullough, East Shore Partners:
“But you have to think about the consequences of breaking contracts for the overall system of law, for the overall financial system.”
The above was spoken by Lawrence Summers on “Face The Nation” on Sunday morning.
Oh sorry, Sherlock. Are you a tad confused because you know that Lawrence Summers is enamoured with the idea of a “cramdown” which is mortgage industry jargon for the breaking of a contract? Are you wondering why all of a sudden he wants to defend 200 years of US contract law instead of hissing on it? Maybe his objective in performing this shameless flip-flop is with a view towards inciting a distancing headline like this in the NY Post:
TEAM O RIPS AIG BONUS BONANZA
Think about it. The US taxpayer has delivered >$170 bil to AIG. Adding insult to injury, we knew at the time that AIG was merely a conduit thru which counterparties were being paid off. And we screamed and kicked in this space (as did others), but couldn’t get a rise anywhere, could we? Not on your life. Well, whadda’ ya’ know now, eh? No bones are bein’ made about that little detail these days; it’s common knowledge that a huge amount of that do-re-mi was only run thru AIG’s books, with the biggest slugs ultimately destined for Goldie, UBS, Deutsche Bank and SocGen. That oughta’ give you a warm and fuzzy feeling, eh?…
So what can the Administration do at this point?
1. Express unbridled outrage. Check.
2. Explain that because “we are a country of law, the government can’t simply abrogate the contracts” (Summers again. This time on ABC’s “This Week”. Geez. He made the rounds, eh?) Read: The AIG-FP bonus checks are gonna’ be paid out because of pre-existing employment contracts. Get over yourselves.
Mr. Summers, chief of the National Economic Council, can rest easy because we idiots, the public, will never in a million years pick up on his shameless flip-flop on the sanctity of honouring a contract.
Thankfully, his boss has since overruled him.