Reuters reports on the rumor that Timothy Geithner, America's Secretary of the Treasury, would finally release the details of his plan to remove toxic assets from bank's portfolios:


"The slow start of the new Federal Reserve consumer lending program this week has been seen as a sign that private capital may shun the toxic-asset plan because of public outrage over large executive bonuses.


Many big private investors are worried they could face tough new rules in U.S. financial rescue programs after Congress pressed ahead with efforts to claw back bonuses paid to executives at failed insurer American International Group."

The employees at AIG do not deserve their bonuses; certainly they are dishonorable, and they definitely deserve to be denounced. But there is much more at stake here than a few hundred employees and several million dollars.

The American financial system needs to get back on its feet quickly; the government must help them get rid of their toxic assets so that America does not live through Japan's '90s example of perpetual unending write-downs.

The way the American government has handled the AIG bonus fiasco neglects the bigger picture. America knows that the world's financial system cannot afford to allow any one of those institutions (AIG, JPM, GS, BAC, C) fail. As your correspondent mentioned recently, the world's financial system came within 24 hours of total collapse. What's more, those financial institutions know they will not be allowed to fail.

In other words, the American government needs its bankers, wayward or not. Raising their ire over their bonus is counter-productive at best, downright dangerous at worst. Mr Bernanke, the Chairman of the Fed, cannot rescue finance by himself; bound by the operating rules of the Fed, he cannot create a bad bank or a toxic asset fund the way the Treasury can. The bankers may rely on Mr Geithner for the survival of their companies, but Mr Geithner depends on the bankers for the survival of America and the world.

Who has more leverage? Those who brought down AIG do not deserve the compensation they received. But America does not deserve the treatment it will receive if the financial system is not brought back to order, and quickly. For Mr Bernanke's hopeful prediction on Sixty Minutes to be realized, Congress must abandon its unwise, though absolutely morally justified, course of action. The Senate must trash the bill.

An alternative might be a more targeted bill: if Congress were to pass a bill levying a 90% tax on companies who have been bailed out by the government more than thrice and received more than $100b in aid, the target of their ire is clear. Banks like JPM and WFC who had TARP aid forced onto them by the Treasury last year would not suffer. Besides, a company bailed out by the government more than three times really ought to preserve its capital, however little the bonuses amount to.

But passing the bill as it is, with its general scope, will harm the US financial industry both in the talent drain it will create and in the way it will tie the already embattled Mr Geithner's hands. Target AIG's employees, not the company; target AIG, not the US financial system; and target priorities -- Congress must realize that there are, to be colloquial, much bigger fish to fry.