Perhaps it was just me, but I thought I detected a note of regret at this morning’s session of the House of Representatives financial services committee about the House’s rush last week to tax 90 per cent of bonuses at institutions that have taken public funding.

The main business of the session was to grill Ben Bernanke, chairman of the Federal Reserve, and Tim Geithner, Treasury secretary, on matters including the AIG bonuses and their request to be granted more authority to seize and wind down insolvent non-banks.

But I had the impression some of the steam had gone out of the protests about the AIG retention bonuses and one or two Democratic of the committee were tacitly signalling that they would not be too unhappy if such a punitive measure never becomes law.

Gary Ackerman, a New York Democrat, was the most explicit in suggesting a retreat from action affecting all employees of AIG:

“Some of us are learning that we have hurt a lot of otherwise innocent and decent people that did fulfill their contractual obligations in different parts of this massive company having nothing to do with the real problem that took place in the financial products division.

“We probably owe them an apology and, even more than that, we owe them a remedy for the damage we look like we have been engaging in.”

Mr Ackerman did not spell out what he meant but I took him to be saying that the House was too sweeping in drafting last week’s bill. Mr Ackerman represents a New York district which is home to a lot of Wall Street employees.

His district covers not only Queens but the North Shore of Long Island, and thus encompasses Great Neck, the model for West Egg in Scott Fitzgerald’s The Great Gatsby.

Later on, Stephen Lynch, a Democrat from Massachusetts, emphasised that he did not “dispute bonuses generally, but in this particular case (AIG).” That would be fine, except that the House bill would affect bonuses for all institutions receiving public funds.

I suspect that the House, having calmed down a bit and listened to some more voters, may be in a mood to soften its assault.

Update: this Wall Street Journal story provides evidence that I was not just imagining the change of tone.

March 24, 2009 9:05pm in Finance | Comment