The actual contract giving out the AIG bonuses was publicized today, and there seems to be a consensus in the blogs I read that it’s not technically a bonus, but a retention payout. In other words, the populist anger is somewhat misplaced on the actual payouts when it should be on the market forces that supported the creation of these retention payouts in the first place. For instance, Nate at fivethirtyeight.com:

I’m just not all that excited about confiscating the “bonuses” paid to the AIGFP employees. Rather, I’m interested in compensation and incentivization structures in general. Aggregate compensation throughout the financial services industry, I would guess, is much higher than is economically optimal… A lot of people are getting paid for what is thought to be skill but is really just luck…

The compensation paid to AIG’s employees… is less a moral failure than a market failure. We don’t like to admit to market failures because they indict our collective judgment; instead we scapegoat and move on.