Obama is sinking US into socialism

To be fair to Obama on this one, so far, it's mainly on Pelosi. But the administration has certainly done its share of getting people riled up about AIG to help the legislation along.

So- you're saying that all highly competent people are motivated solely by personal greed? If that were true, you'd still be on Wall Street. I have a feeling you could find plenty of competence for 200K salary and no bonus (which completely avoids the new tax). The people who ran these companies into the ground are not unique and irreplaceable; they're simply the ones who had the right luck and connections.

Also, I don't trust the bonus model in general- it seems that it encourages short-term decision making, which inflates bubble after bubble.

One more point: these were "retention" bonuses, and they didn't work at that. Several of the recipients took the money and left anyway.

... and finally, I'm not disagreeing about this particular move being dumb. Nationalize the whole mess and sort through it with civil servants.

"Nationalize the whole mess ...", why do you think government could do better ? Look the social security mess

I think we'll have to agree to disagree on this one. You're going to have a hard time getting me to believe you can get just as good people capping pay in NYC at 125K (for single people) or 250K for families as you can without such a cap. Not going to happen. Particularly not in banking and trading, which are industries in which money is the yardstick. Sure, I'm not as motivated by money as some people, but then that's part of why I'm not in trading anymore.

If by "nationalize it and let civil servants sort it out" you mean "let the government run the banks forever," I'll pass. Look how well Congress is doing so far. No thank you. Besides, it's not clear these companies can even be nationalized -- these are global institutions, and other countries have a say in them, too. There's no easy answer here, and I think part of the danger we face right now is there are way too many people who simply say, "Let the government handle it." It's just not that simple. I don't have any answers, but quibbling over a relatively paltry amount of bonus pay (and going after it with the IRS in a very ham-fisted and stupid way) hardly seems like a step in the right direction. But at least it prevents Congress from throwing another trillion dollars at a bunch of special-interest groups.

I do agree that the people in these companies are not irreplaceable. But I also think that, as an investor, if I had to choose between investing in a company that had hard caps at such low levels and one which didn't, I know which company I'd bet on. I don't argue against this tax due to its effect looking back (though I think those types of laws should be used *very* sparingly) -- I argue against it based on its effect going forward. That said, if we get away from the myth that the "people" are "invested" in AIG through the government and should expect a return on that investment, then perhaps we shouldn't care that this law will make AIG very un-competitive going forward. Frankly, I'd rather see our ownership leading to orderly dissolution of the company, in which case, I agree that we don't need multi-million dollar people in charge. We mainly need close oversight to keep graft at a minimum, but I don't know who we can trust to get that right once no one has a personal stake in the outcome (no, I don't trust civil servants in this regard -- government-run entities are notoriously graft-addled).

No, I don't mean that the government should run the banks forever. I mean that we should do what we already do to smaller bank failures through the FDIC and what our government has recommended for foreign countries in their past crises. Take it over, dissolve some parts, and sell what's left ASAP.
The problem is that it has to be done all at once; we should dissolve AIG, but many large banks go bankrupt the moment we do. Even announcing an intent to do it could force the issue.

I've also seen some mention of the senate weakening this. Our system does hedge against brief populist waves by slowing everything down.

Indeed, this is the genius of the structure of the Senate, as George Washington allegedly commented. And I do fully expect the Senate to temper this.

As for nationalization, I'm with you that an orderly dissolution is the way to go, and that the current folks at AIG aren't essential to doing it. How to get from here to there is not at all clear to me. And from what I've seen from the administration, I don't have any confidence that it's clear to them, either. Particularly judging by all the empty offices at Treasury, which should be a huge embarrassment to the administration right now. And just don't get me started on Frank and Dodd (and numerous others in Congress), who have a nontrivial share in the blame for this mess in the first place for shielding and encouraging the shenanigans at Fannie and Freddie for so long.

I think the globalization issues can probably be circumvented with AIG, but Citi is much harder.

Its sometimes useful to analyze conflicts in terms of abundance and scarcity. Many people believed, and some still cling to the belief, that wealth is scarce and that for someone to win another needs to lose. But history has proven that this is not how the world works.

While wealth is abundant, what remain scarce are the quantities of popularity and power. If you become more popular it may well mean that my popularity and power are diminished.

Seen in this light, the fight between Wall Street and the Beltway may be less about the allocation of wealth and more about allocation of power. Money is just a means to demonstrate power over the "other" by handing over campaign distributions or by granting earmarks or inflicting taxes.

If the United States were a John Hughes high school movie, Manhattan, Washington and Hollywood elites would be best understood as sometimes allied and sometimes rival cliques each striving to claim dominance over the other and by extension the rest of us in the rank and file.

Washington is destined to win this game, because the only people attracted to that life are those most desperate for popularity and the most devoid of any inner qualities.

In my opinion, the best that the rest of us can do is to ignore the self-infatuated "popular kids" and focus on creating real wealth and happiness ourselves. Of course this necessitates shrugging off any claims they have to our admiration, attention and our property.

Sorry to intrude on the larger discussion, but back to rrusczyk's original comment, it's ok about the law being ridiculous. The tax is ex post facto and thus unconstitutional and unenforceable.

The law is certainly enforceable, and I don't think it will be ruled unconstitutional. The constitution throws out ex post facto laws and bills of attainder, but the bill can be construed as a restriction on beneficiaries of some federal program, rather than an after-the-fact punsihment for crimes. Sure, it could be interpreted either way, but I think that public opinion is probably sufficiently in support of the bill that the courts would tend to support them. Besides, it seems doubtful that the taxees would have the gall to challenge the law in court.

I doubt it will get tested -- I think jmerry is right that the Senate will curb it to the point that no one will find it worthwhile to sue.

If there's one thing that people should all agree must be learned from history is that if we "just let everything work itself out" it won't work. Whether it's the government or a business in control, unless there's attention placed, nothing except escalation will be accomplished.

What do you think?

I'm not sure what you're saying --- are you saying that history teaches us that a "higher power" (government or business) must be resorted to in messes? I strongly disagree with that assertion. Very, very strongly.