If you're wondering why we didn't let AIG fail, Felix Salmon explains it slowly and clearly and argues that we really didn't bail out AIG: We bailed out the Credit Default Swap market and used AIG as our point of entry. "It was quite an elegant solution, in its way," says Salmon. "Rather than trying to unpick the CDS knot institution by institution, you could just bail them all out at once by backstopping AIG." Of course, then you read this sort of thing arguing that we should give the AIG guys the bonuses because if we don't, Wall Street will lose its faith in the nature of contracts and the AIG traders will refuse to tell anyone where the debts are buried and you begin to want to blow up capitalism and start over entirely. Happily, the Senate seems to feel much the same way. Claire McCaskill's new tumblr site explains that "There will be a letter sent to the CEO of AIG from most, if not all, of the Democratic Senators momentarily. This letter will demand that any bonuses be withheld or repaid immediately. The letter goes on to explain that we will proceed to recover the bonuses through taxation if AIG fails to recover this money for taxpayers." Harry Reid has asked Max Baucus to have the legislation ready in 48 hours. Felix Salmon, for his part, has an idea on structure. "Set the surtax at, say, 150% of all bonus payments," he suggests. "Then that would pretty much guarantee that the recipients would decline to receive them."
