Outrage bubble: Sen. Dodd

Sen. Dodd (D-AIG)

There's a bull market in outrage these days. The AIG bonus kerfuffle is as politically potent as it is economically trivial. On the very day the Federal Reserve announced that it plans to buy almost $1 trillion in treasury bonds and mortgage-backed securities, Washington was fully engaged in a round of finger-pointing over who knew what when about $165 million in bonuses at the failed insurance company.

We're as perturbed as anyone about bonuses being paid by a company that has drained tens of billions of dollars from American taxpayers. We're also amused that one of the principal apostles of outrage, Sen. Chris Dodd, Democrat from Connecticut, apparently added changes to the stimulus bill that made it possible for AIG to pay the big bonuses. Dodd, chairman of the Senate Banking Committee, is already in hot water because he accepted low-interest personal mortgages from Countrywide, the lender that later went bust. He also may be involved in a shady deal involving his vacation home in Ireland.

It has been hard to keep up with Dodd's changing stories, but one version has him inserting the bonus-enabling language at the behest of the Obama Treasury Department. Dodd, by the way, was the No. 1 recipient last year of contributions from AIG employees and political action committees, raking in more than $104,000. Barack Obama was a close second, receiving just under $104,000 in AIG money.

We're not really sure what all of this means -- except that Chris Dodd surely is not the man to oversee the revival of the banking industry.

We hope, as the great recession continues, that Washington will soon turn to more serious topics, including the impact of the Fed printing another trillion greenbacks. Our sense is that the move may be necessary to help repair credit markets -- but that it also poses significant risks of higher inflation and a much weaker dollar if the central bank is unable to mop up all that new money once the credit markets settle down. Left to their own devices, Chairman Ben Bernanke and the Fed might be able to rein in the monetary base. But it will be a very tricky maneuver. If politicians like Dodd and Rep. Barney Frank are still shouting and posturing, the bankers won't have a chance -- and neither will the rest of us. By then, the AIG bonuses -- annoying as they may be -- will be long forgotten.