For the record, although I’m sure Ivan and I will talk about it on the next show… I think the AIG bonuses are crazy. But I think the proposed retroactive taxes to take them away from the people who got them are completely and totally wrong and misguided and a horrible horrible precedent. We want a government that feels free to decide after the fact that it doesn’t like that you made the money you made, and then change the rules so that they can take it from you… after you’ve got the money (and quite possibly after you have spent it, not knowing it would be taxed)? Really? We want that? Really?

These bonuses were written into contracts that AIG made. They were probably contracts AIG should not have made. But they were already done by the time the bailout happened. They were obligations, just like the other debt obligations AIG had. Of course AIG was going to pay its debts with the bailout money. That is what the bailout was for after all. Duh.

And no, we shouldn’t have put strings on the bailout saying that AIG should pay some debts but not others. If we really felt that way, we should not do a bailout at all. Let the damn thing go out of business, then if there are creditors we think deserve it more than others, bail THEM out.

All and all, with every turn of every screw in this whole saga, I’m more and more convinced that the “right” thing to do, going back all the way to last fall, is to not have bailed out a damn thing. Not one company, not one industry. Not the financials, not the autos, not nothing.

Would we have a worse recession right now if we had? Probably. I won’t try to argue against the folks that say these bailouts were necessary to prevent that from happening. I’ve always had severe reservations though.

And at this point I’m thinking that perhaps an extremely severe recession where most of the companies in most of these industries go completely out of business… taking with them all of the other companies… and yes regular people… who depended on them… is really the only way to get the bad blood out of the system. To completely and totally kill (for at least a generation or two, these things always come back) the idea that the bad practices that resulted in the mess are things NOT TO DO. Right now, I don’t see that lesson REALLY being learned. People are just waiting for the tide to turn and then they will go right back to where things were.

We need to get back to the point where if you are going to try something, you really do shoulder almost all of the risk for it yourself, rather than trying to bury the risk in layers of insurance products designed to make the risky not risky. Hey, guess what, things are still risky. You’re just moving the risk around and making it harder to see. It does not go away. And maybe insurance makes sense when it is against things which are actuarially highly predictable like death and disease and fender benders… but there should not be insurance against bad business decisions. It just distorts the whole incentive model and encourages people to take on very risky endeavors that are probably best left on the table.

How about a little caution and prudence instead? Sure, you don’t get as big an upside, but so what.

Anyway, I say bring on the damn depression. Let everything fail. Salt the earth. Perhaps there will be horrible pain for a generation. But what comes after that will be stronger because of it. Trying to prop this crap up MAY be helping things in the short term, but in the long term, it is just propping up businesses and business practices that deserve to fail. Let them die.

DIE DIE DIE.