The exciting stock-market rally of the last few weeks persisted in part because the government and the Fed's announcements of optimism and detailed plans to shore up the American financial system have given investors a sense of confidence. Confidence in America's political stability and the rule of law in protecting economic transactions has long been a pillar that held and still holds up the American economy. It is a mistake to allow that pillar to fall into disrepair.

As I have argued before, the executives did not deserve their pay; but the stakes are far higher. A friend of mine summed up the fiasco over the AIG bonus payments as "the American government extorting its citizens." Indeed, most of the American executives promptly returned their bonus money following death threats on their families and public outrage. Alexis de Tocqueville eloquently called it "tyranny of the majority"; your correspondent lacks his sense of restraint -- it is mob rule. The 90% tax on executive pay is not only unconstitutional because of it targets a select group, it is an alarming example of when the American government responded to an outraged majority to target a minority.

The unconstitutionality of the bill and its mob-rule origin chip away at the pillar of political stability that is key to any economy, and one that has seen the American dollar replace gold as an international standard. Today, the Federal Reserve reported that requests for loans from the Term Asset-Backed Securities Loan Facility (TALF) dropped 64% this month from $4.7b to $1.71b.

“It is a big disappointment,” said Stephen Stanley chief economist at RBS Securities Inc. in Greenwich, Connecticut. “There are some folks who have decided they just don’t want to play in any government programs.”

Undoubtedly, Mr Stanley is referring to comments like these (pulled for Bloomberg): “I can do very well for my clients without venturing into federal waters which are inhabited by sharks...We are leery of doing anything with the federal government.” -- David Kotok, the chairman of Cumberland Advisors Inc. in Vineland, New Jersey, who manages about $1 billion.

The market's performance in January through February was demonstration enough of what lack of confidence in the political pillar can do: from January 1 through February 27, the Dow dropped 19.52%. The government ought to hold more rigorously to the constitution than ever before, and make a public point of it; it should also resist the public choice temptation to respond to populist outrage. If political winds continue to blow the populist way, the gust will gnaw further at the crucial political pillar that helps hold up the American economy. Every dent in that pillar will correspond to a drop across American indexes.

Now, more than ever, we must carefully examine the speeches of the likely candidates running for election (or re-election) to Congress to see which way politicians are leaning. At this stage of the recession, reassuring both foreign and domestic investors that America is politically stable and rational is crucial. Data and reports are, obviously, important. But in the coming months, politics will play as large (if not larger) a role than data and financial reports.

It's time to renovate the pillar after the damage the AIG fiasco caused.