I haven’t sermonized about the AIG bonuses, not because I don’t have an opinion but primarily because reasonable discourse has been overwhelmed by emotion and demagoguery. I am going to stick a toe just a bit into the swamp in order to tackle a larger issue.

One could argue the rational for paying bonuses to AGIFP all day long and not reach any agreement. The most definitive statements I believe you can make about the entire episode are that AGI management was politically insane to have made them and the Obama administration and Congress have been duplicitous in their response to them.

The first statement needs little elaboration. Any fool should have seen that the payment of monies in significant sums to the parties that were primarily responsible for the disaster would provoke public outrage particularly in the midst of a severe recession. There may be merit in the argument that these employees had to be retained to mitigate the losses but some other means should have been crafted to do so.

As for the second statement, both the legislative and executive branches of the government aided and abetted the payment of these bonuses. The legislative branch knew of the obligation of AIG to make these payments and specifically authorized the payment in enabling legislation. The executive branches of two administrations also were aware of the bonuses, worked with the legislators to legitimize their payment and withheld information about the payment of the bonuses from the public.

When cornered both the administration and the Congress have acted in a craven fashion. Rather than owning up to their complicity they have attempted to deflect attention from them towards the company and its employees. A fire storm of dangerous rage has been stoked by the political class and they are in the process of using the tax code to directly attack a small group of people in order to seize personal property that was legitimately acquired.

That being said, one would have hoped that this would go down as a sad but small footnote to the financial crisis. Apparently, the Obama administration wants to use it as an opening to a sweeping initiative to control compensation across a swath of the economy.

The New York Times is reporting that the administration is planning to call for oversight of pay at all banks, Wall Street firms and other companies. Details of how to implement such control are still under discussion but they envisage some requirement that compensation is tied to performance and achievement of financial goals. The article implies that the program could be expanded to include publicly traded companies that are subject to the oversight of the Securities and Exchange Commission.

Admittedly, the administration may just be floating a trial balloon and a part of the discussion may be simply to indicate to the Europeans ahead of the G-20 meeting that they are serious about regulation but they are playing a dangerous game. Congress has tasted a pretty heady elixir with the AIG fiasco and may be in the mood for much more. Giving them any opening at this time is a dangerous move.

The country has, in the past, strayed from its constitutional roots and persecuted groups, often under the guise of national security. Today we speak of systemic risk and too big to fail as our excuse for tampering with property rights. Certainly society has a right to protect itself from enterprises that grow too large and thus threaten the common weal. There is a defined set of procedures for dealing with that situation, our antitrust statutes.

The fact that we neglected to protect ourselves by not using this tool is not an excuse for confiscating property by any means. The proper procedure is to reverse the error and in doing so ensure that citizens can go about commerce certain of a minimum of interference from government at any level.

Nothing good can come from the sort of government activism that we are witnessing. Entrepreneurial spirits are going to be quelled and the groundwork laid for state economic control. We know the end result of that course. AIG may indeed be a footnote but not a small one. It might well be the point at which the American economy turned its back on success and opted for a dead end.