An act of God?


(UPDATE’S third paragraph to clarify the irony in Weinstein’s Ethics Czar reference).

Force Majeure is standard language in finance contracts, specifically debt paperwork. If you are building a pipeline across the San Andreas fault line and the earth moves, the risk that the hand of god has made it impossible for you to pay your debts is kind of a default valve absolving you from having to honor your contract. Is that what is happening with AIG? Those who argue contracts can (and, more alarmingly, should) be easily broken often cite Force Majeure as an example. But one might be hard pressed to find an example of a more man-made catastrophe than the seemingly crazy, but once pretty much standard contracts at AIG’s Financial Products divisions.

Later this morning, AIG’s CEO Edward Lilly is scheduled to strap into the Capitol Hill hotseat, where he is likely to face several fire hoses of vitriol over his decision to pay bonuses. He might also face a few thorny ones about settling bad bets with counterparty banks. Though the hand of God may not have been behind AIG’s demise, Liddy will certainly need divine intervention to ensure that he can conduct anything like business as usual at the not-quite-bankrupt but mostly government-owned insurer. Such an outcome would hardly be considered righteous by the angry mob.

BusinessWeek’s Ethics Guy Bruce Weinstein notes that the Obama administration has looked at appointing “Czars” for various troubled parts of America Inc., so why not an Ethics Czar? He says the real message behind his ironic lead is that we all need to be better at mastering  our own ethical universes and living up to higher standards. Indeed, while the outrage may be genuine, it’s easier to imagine ones neighbors accepting bonuses than ripping them up or handing them back to their employers. Another reader of this blog argued convincingly for the use of moral suasion to convince AIG’s big bonus heads to comply with common sense, and it also fits with President Obama’s state approach to accountability.

We notice that the official responses to the bonus issue include targeted taxes and other extraordinary measures to reclaim the bonus money. Somewhere, beneath all the hoopla, lies the ethical conundrum that it was legally prepared agreements that got the company into this mess, and it seems to be the trashing of these agreements that America is demanding to right its ethical ship.

The pizza guy will miss AIG-FP’s business

98401205_3In Wilton, Connecticut, a bucolic town an hour’s drive from Manhattan, there is nowhere for AIG’s derivatives whiz kids to run, but neither is there a need to hide.

Even as questions of who is benefiting from AIG’s billions of bailout dollars stir resentment on Wall Street, people in Wilton — where AIG Financial Products, the unit that built highly complex trading instruments that eventually gutted the insurer, is based — aren’t throwing any brickbats.

People who live in the area said they have very little interaction with the dozens of businesses based in Connecticut’s dollar-dripping “Gold Coast,” dotted with golf courses and 10,000 square-foot homes.