The AIG bonuses: what matters more than what's legal?

President Barack Obama’s worst moment on yesterday’s Jay Leno show came, not when he made that bowling gaffe, but when he airily suggested a distinction between what’s legal and what’s moral.

In case you didn’t catch it, here’s what the President said about the decision to honour what were evidently legally binding agreements to pay bonuses to AIG employees:

“In fairness, I think that part of the calculation they were making was the way the contracts were written said, if you don’t pay us immediately, then we can claim three times as much as we were owed under the bonuses.

“And so they were making a legal calculation, and their legal judgment was not necessarily wrong. But there’s a moral and an ethical aspect to this, as well. And I think that’s what has gotten everybody so fired up.”

In other words, withholding the bonuses would have been an unlawful violation of contract rights, and so carried with it a penalty. Does Obama seriously believe some nebulous “moral and ethical” considerations might trump the rule of law in this case?

His chief economics adviser, Larry Summers, apparently has a firmer grasp of fundamental principles. Here’s what Summers said when was pressed on the AIG bonus mess by George Stephanopoulos on ABC’s This Week: “We are a country of law. There are contracts. The government cannot just abrogate contracts.”

You would think that point is beyond dispute. But Summers was commenting way back on March 15. Since then, public outrage has driven every American politician I’ve heard pronounce on the issue, including the President, to choose rhetoric somewhere on the continuum that runs from empty pandering, through cheap populism, to ugly demagoguery.

It’s been a disgraceful display. No matter how hard it is to face angry people, elected politicians in democracies must first affirm the law.

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