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What happens when the federal government chooses to not just set the rules for free market competition, but to become a full fledged market participant?

The result is AIG.

Until now contracts and the rule of law prevailed in the United States. In fact on Sunday March 15, Economic Council director Lawrence Summers told ABC News that “We are a country of law. There are contracts. The government cannot just abrogate contracts.”

Why is Hong Kong a better place to do business than Shanghai? Why has America been a better place to do business than Russia? It is because of the certainty of the contracts. When the uncertainty factor goes up, investors lose interest and move to more certain business climates. Uncertainty increases the risk of losing all or part of your investment, including money, time, or both.

By Tuesday of the same week, Senator Schumer and Representatives Dingell, Israel, and Pelosi were trying to out-demagogue each other in their demand that contracts are broken and legislation is draw up to tax up to 100% of the bonuses away.

Meanwhile these same indignant public officials had only weeks earlier passed a stimulus bill with a provision to exempt bonuses contracted for prior to February 11, 2009. When you vote to bailout, refund, and recapitalize without provisions for renegotiating management and labor contracts you are in effect signing up to support all the existing contracts. Who elected these incompetent people? Do they understand what they are doing? Are they reading the legislation they are passing? We at least know the answer to the last question is “NO”. If they can’t run AIG, do you want them running the Medical Industry?

What is the lawful way to break contracts? It is mutual renegotiation or bankruptcy. Apparently our elected officials understand neither and are making a mockery of the rule of law and our Constitution.

On Wednesday March 18, 2009, The Wall Street Journal reported that some of the billions of dollars that the U.S. government paid to bail out AIG will likely benefit hedge funds that bet on a falling housing market. If true, is Congress going to demand these contracts be broken? Where does it end? Does your Congressman know how to run AIG? Is your Congressman better equipped than the market and bankruptcy courts to sort out these details and make good decisions? I think you know the answer. So why are you allowing your Congressman to spent billions of your tax dollars to make idiot decisions and then pretend he or she is “outraged”?

From Wexford Bob ---- March 2009

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