It seems many people are outraged at the wrong source. The media has actively covered the AIG bailouts explosion with such fervor and outrage that is expected from such a overallocation of funds, but the people to be mad at are not the Edward Liddy’s of the world; its the slippery slope we unleashed in dealing with these troubles.

The $165 million in bonuses (after $55 million in December) paid out to executives and ranking members at the insurance giant, bailed out by the American people last year to the tune of $182 billion U.S. dollars, has turned in to arguably the biggest political-business fiasco in years.

President Obama responded to the public outrage by, in many ways, losing his cool and collected attitude that has been so characteristic of him. Instructing Timothy Geithner, the Treasury secretary to attempt to scrape back the funds paid out in any available legal method; yet the government, it appears, has no authority to do so on any legal plane.

Senators Baucus and Grassley, proposed a bipartisan bill Tuesday to mount an effective 70 per cent excise tax on “bonuses” in the style of AIG’s. The House passed a piece of legislation Thursday which would implement a 90 per cent tax on these bonuses. Yet still, an agreement between the two bodies of legislation will need to be met to implement such a tax. Implementing a near-100 per cent tax on bonuses of this sort seems to be the only constitutionally sound way of interfering with what was a contractual obligation.

Many feel the recipients of the money should feel obligated to their country to return their money — and indeed, some have. Edward Liddy, the new chief executive of A.I.G., appointed by the Obama administration during the first bailout, who fell in to the contractual obligation of paying out the bonuses, asked the recipients to voluntarily return bonuses in excess of $100,000; calling it the “right thing” for them to do. Liddy reported to the House’s Financial Services Committee that a number of the employees he asked have offered to return their money, and more importantly that he wants to “make sure we dont find ourselves in this situation again, where taxpayers are on the hook for losses in bad times and all the wealth generated in good times goes to those at the very top.”

Some Republicans fear that the President, out of anger, may attempt some form of executive order to break the contracts — a potentially unconstitutional system of power which effectively grants the President “unlimited” power and has been actively abused to make laws without Congress’ approval. Such a political move would be devastating for the President’s support and would be likely to shift political outrage from the executives receiving bonuses, to the President for involving himself in the affairs of private contracts.

The contracts in question were signed before Edward Liddy came in to executive office at AIG and before federal funds were being used to sustain the company from a liquidity crisis. Shareholders and the current executive body should not be blamed for withholding taxpayer money, for they sit in a situation where decisions-past were already made. The true responsibility, if any, sits with the government and those who received bonuses — the government’s lack of diligence in identifying these contracts and dealing with their resolution before the issue exploded; and arguably, the moral responsibility for the recipients to return the money to the American people.

But the President has a possible solution — a suggestion for the Treasury to withhold the sum of the bonuses from the next round of AIG bailout money, agreed to be paid since March 2nd, indirectly returns the money to the people and punishes… the shareholders. The shareholders, who are now 80 per cent the American people. The design of the bailout at this point is to keep the company afloat until the point where it can produce an adequate return for the American people; by withholding money designed to achieve this goal, the executives who received the bonuses will still have the money in their pockets. If the money is being spent in the public interest, then the full amount should be received by AIG; receiving less would suggest that the government was originally willing to provide more than it should have.

This bipartisan issue has enraged both the Republicans who disagree with bailouts entirely, and the Democrats who are disgraced by the have and have-nots dichotomy expressed in the size of the contractual agreements being taken directly from the American people. Many analysts began suggesting that such outrage could mark the end of Congress passing bailout packages, particularly those directly for private corporations, which were already on tight rope.

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