Obviously, I don’t very much like Congress’ latest bonus shenanigans. It is at the very least constitutionally problematic, it sets a bad precedent for other politically unpopular groups, contracts are contracts, and nothing that contains the phrase “90 percent tax” can possibly be a good idea. That said, Daniel McCarthy has a point:

The incentives created by the tax are all in the right direction: 1.) don’t continue to reward the bigwigs at AIG, Fannie, Freddie, etc.; 2.) don’t encourage talented people (if there are any) to stay with these zombie companies that already aren’t “viable” –it’s better that talented people go to companies that actually are viable; 3.) send a signal to other decrepit financial institutions that bailouts come with some personal pain (or at least deprivation of pleasure) for the receiver; and 4.) having already decided to pour billions upon billions of taxpayer dollars (or Chinese loans) down the sinkhole, at least refrain from adding insult to injury.

Given the unitended consequences of government policy, I’d probably quibble with the word “all.” But neither federal bailouts nor prison sentences should be fun for the receiver.

UPDATE: A commenter below raises a fair point about financial institutions that did not want to take the TARP money.