AIG

I have mixed feelings regarding the AIG bonus todo.

My first impression was one of non-sympathy for the AIG employees. Yes, many of them worked very hard and profitably, and had nothing to do with bringing AIG down. On the other hand, was AIG allowed to go under, they would have received nothing from AIG.

On the other hand, the abdication of rule of law is near revolting. State Attorneys General ought not be implicitly threatening extra-judicial violence to get their way.

In the end, this will all have two predictable consequences, neither of particular benefit to the taxpayer.

The first and narrower is that taxpayers are likely to lose more then they gain. Employees that could have generated profit for taxpayers will leave for employers willing to pay them.

The second and more general is that no sensible company with options will take a dime of government money. One has to imagine that had Bank CEOs knew what was coming many would have simply told Paulson "No" when he demanded they accept government money. Legitimate firms are going to shy away from any public-private proposal the administration puts forth.