So I said in this unusually pessimistic appearance on Scott Horton's radio show.

This AIG bonus bill has really sealed the deal for me. Suppose you were put in charge of AIG. How would you structure compensation packages to attract the right people who would actually turn the company around? Why, I think you would want low base salaries and bonuses tied to objective measures of performance, which could be quite lucrative depending on what happened with corporate profits.

Well shucks, the government just took that option away from you. Try again.

Now look, I am NOT defending the $165 million as "efficient." Obviously the people running AIG (and who offered those contracts) didn't know what they were doing; that's why they have asked the government for $170 billion so far.

But what I am saying, is that now it will be much harder for not only AIG, but also all other financial institutions, to turnover their employees and retain/attract the right people needed to fix this mess.

As a matter of fact, I imagine the most competent people are jumping ship for other industries en masse now. Now they realize, that even if they succeeded in their difficult task, the government would swoop in and take their earnings.

Seriously, just think about that: Suppose you run a completely private hedge fund, which had no ties to government bailout money. Is it inconceivable that if you made $20 billion shorting U.S. Treasurys, that Uncle Sam would design some special new tax that basically gave them the right to take $19 billion of it from you? And make it realistic: You made $20 billion from "shorting America" while unemployment is 10.4%. You think the public is going to cry foul when the feds take your money?