I recommend this editorial in the FT: the rage over AIG is understandable but not thought through, and the House bill is an abdication of responsibility.

In AIG's case, the US government is now the de facto owner. As such it has rights and responsibilities, and it should attend more conscientiously to both. The Treasury should decide whether the bonuses are necessary to retain people essential to the success of its stabilisation plan. If they are, much as one may recoil at the idea, the bonuses should be paid: the cost pales in comparison to the vastly larger sums at stake. If not, the people who received them - those who have not already left, that is - should be told to return them or be fired. The government is within its rights as a new owner to set new terms for its employees.

The legislative blunderbuss about to be discharged by Congress, on the other hand, is likely to blow up in taxpayers' faces. It forbids the case-by-case judgments on pay which are necessary to ensure that the stabilisation plan succeeds. And it expresses the tyrannical principle that Congress can use the tax code to void contracts that the executive branch has consented to, after the fact and with retrospective force. The measure is constitutionally dubious, as Congress well knows. All these considerations have been set aside for the purpose of venting the country's anger. It is an abdication of responsibility.

I was interested to see EJ Dionne take a different line. He thinks that blind rage is a good thing, and economic populism a force for social justice if only it is intelligently directed.

With the populist furies unleashed, the Obama administration has two choices. It can try to fight the public. Or it can use the public's legitimate outrage to move the country in a better direction. Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, points to the irony that populism threatens to work against Obama even though the president has proposed "a populist budget" that asks the wealthy to commit more money to the common good.

Frank also ridicules the idea that AIG can't find smart people to replace those who might walk away if they are denied their extravagant bonuses. With unemployment among investment bankers at a rather high level, "it's not like you're going to have trouble hiring good people," he said dryly.

Obama needs to do two things at the same time. The administration will have to spend piles of money to unwind the financial mess. A share of the largesse, as Frank acknowledges, may indirectly benefit some of the malefactors in this saga. Yet if the public sees this spending primarily as a reward to those who got us into this fix, and not as necessary to solving a problem that affects us all, it will revolt.

So the administration also needs to argue that the new economy it will create on the ashes of the old will be more equitable, based on fair reward for capital and labor alike, not on an ethic of greed and excess. Obama can work with the populist wave or he can be overwhelmed by it.

I cannot think that the country's anger over Wall Street will be much assuaged by healthcare reform and the rest (desirable as those policies might be); on Dionne's analysis, why indeed should it be? In the shorter term, we have to get out of this mess or else none of those ambitions will be affordable, and "populist furies" are not conducive to solving the problem. So far as resolving this immediate crisis is concerned, I agree with Steve Pearlstein:

There's nothing remotely fair about using taxpayer money to rescue a free-market financial system from the mistakes of the financiers. But the reality is that we can punish the bankers or we can save the banking system, but we can't do both at the same time.

By the way, on whether Dionne and the other orchestrators of rage will succeed in punishing the right people at AIG and other firms, this piece about the insurer's financial products group in the Washington Post (Style section, oddly enough) is worth reading.

The handful of souls who championed the firm's now-infamous credit-default swaps are, by nearly every account, long since departed. Those left behind to clean up the mess, the majority of whom never lost a dime for AIG, now feel they have been sold out by their Congress and their president...

The very handsome retention payments they received over the past week were set in motion early last year when the firm's former president, Joe Cassano, was on his way out the door. Financial Products was already running into trouble on its risky credit bets, and the year ahead looked grim. People were weighing offers from other firms, and AIG executives feared that too many departures could lead to disaster.

So AIG stepped in with an offer to employees of Financial Products. Work through all of 2008, and you'd get a lump payment in March 2009. Stick around through 2009, and you'll get paid through 2010. Almost all other forms of compensation -- bonuses, deferred payments and the like -- have vanished...

"They are replaceable," [Gerry] Pasciucco [AIG's COO, recruited in November to shut the group down] acknowledges. "If we were running a long-term business, we could probably replace them over time, not all at the same time."

But it would be impractical at best, dangerous at worst, to get rid of everyone at Financial Products, according to AIG officials. If everyone leaves, Pasciucco said, "you don't have people that really, truly understand the book [of business]. We're still big enough that that matters."

If they did walk out the door, who would volunteer to work at the Chernobyl of the financial world? And what would become of the mammoth portfolio that remains?...

In the meantime, the e-mails from the public have continued to roll in, including death threats and calls to blow up the firm's Wilton headquarters. Reporters and photographers have camped out in front of the offices in London and Connecticut. They have staked out employees' houses. The New York Post identified one executive and labeled him "Jackpot Jimmy." Another employee had to relocate his family after a London tabloid printed his address. A protest group is organizing an "AIG magical mystery tour" Saturday, loading up a 47-seat bus to stop at Financial Products and at the homes of some of its executives.

Gotta love that rage.

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