Jonah Goldberg has a great article on National Review Online regarding the AIG bailouts and bonuses.  Like I said yesterday, the generous bonuses being paid to many of AIG’s top executives may leave a bad taste in your mouth, but these were legal contracts, entered into prior to any taxpayer money being paid to AIG, and the government knew about these promised bonuses before they bailed AIG out.  Mr. Goldberg is spot on in the following passage:

We should have learned from the government takeover of Fannie Mae and Freddie Mac what dangers lie ahead: The rule of law and political manipulation of the economy don’t mix well (Indeed, AIG’s toxic loans were made with considerable regulatory and political oversight). Liddy – the front-line sweeper behind the AIG elephant – has already warned the administration that letting politics dictate salaries and bonuses will make it difficult for the firm to retain talented staff.

But the unintended consequences surely won’t end there. What signal does it send when the president and Congress make it clear that they will revisit legal contracts that run afoul of populist outrage? Already, many banks that have received bailout money are returning it – or trying to – because the political strings attached hinder them against competitors. Worse, the highly politicized climate requires financial firms to become dependent on the whims of Washington, which can’t help thaw out frozen credit markets, particularly when Geithner has yet to explain what his actual policy will be.

Although the end result may not be ideal in this particular situation, we certainly do not want to open the door to allow Congress to interfere with or void legal contracts just because the don’t like them.