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The idea that AIG’s “financial services” executives are going to get $170+ in bonus payments, on the taxpayers' dime, is more than outrageous. It is criminal. It is my understanding that many of the people set to receive these bonuses are the very same ones who wrote the derivatives that have caused the world financial system to collapse. In other words, they are being rewarded for misconduct. If ever one can speak of so-called “moral hazard”, now is the time. This is yet another illustration of the reason I have steadfastly opposed these bailouts from the very beginning. I warned, back in September, in an article written for Seeking Alpha, that former Treasury Secretary Henry Paulson would use control over the bailout process in a nepotistic manner. That prediction came true.

Lehman Brothers was a big financial institution whose biggest counterparties appear to have been European hedge funds (after subtracting counter-hedges), Asian banks, and some smaller non-primary dealer European banks. It was, therefore, allowed to fail. Most of the counter parties were outside the inner circle of the Federal Reserve’s primary dealers. The AIG counterparties, however, both foreign and domestic, were almost all Federal Reserve primary dealers, in America, Europe and elsewhere, like Goldman Sachs (NYSE:GS) (the number one counterparty), Merrill Lynch, Citigroup (NYSE:C), UBS, Societe Generale (OTCPK:SCGLY), etc. Accordingly, AIG has been blessed with $180 billion dollars of the taxpayers' hard-earned money, and counting.

When we get to the bottom line, the money has now been transferred as a gift from the U.S. government to the primary dealer counterparties. More than $12.9 billion was a gift to Goldman Sachs, alone, the investment bank over which Mr. Paulson presided as Chairman during the years in which the toxic financial instruments, now bringing down the world economy, were created. These are the same primary dealers, I might add, that conspiracy theorists accuse of being members of the PPT (Plunge Protection Team) and masterminding years of gold/silver price suppression as well as the wholesale manipulation of the stock market, bond markets, and futures markets in oil, gas and other commodities. With the revelations of the last few days, we must give more serious consideration to whether the theories of people, once dismissed as “kooks”, may well be the truth.

For now, however, practical matters come first. In order to deal with the AIG derivatives team now angling for bonuses, as well as other bank executives who presided over a joint enterprise that resulted in the destruction of the world economy, we must first examine the basic facts. We must all respect the sanctity of contracts. The last thing anyone should do is advocate the breach of a legitimate contract. But, are these “contracts” still legit? What are the real legal obligations of AIG, and of the U.S. government, toward these accused AIG employees?

A contract is only enforceable if both sides have carried out their obligations. Financial services employee, especially those in a managerial capacity, have fiduciary duties to their employers. They also have a duty to carry out their jobs without willful, wanton reckless disregard for the consequences of their actions. The AIG employees failed in their duties, and, therefore, breached the contracts. In pursuit of big bonuses, during the heyday of the boom, these AIG employees created toxic financial instruments that any reasonable person would have or should have known would eventually implode and destroy the company. It is abundantly clear that, based upon the net asset value of AIG, it could never meet the risk of the obligations contracted for, under the various swap agreements.

If one party to the contract is in breach, the other party is relieved of his obligations and may sue for damages. The AIG employees breached their fiduciary duty and their duty of good faith and fair dealing with their employer. They acted in a manner that was willful and wantonly reckless in the performance of their job duties. Accordingly, they breached their employment contracts, and they DO NOT have valid legal claims to the money. Payment should NOT be made to them. The fact that AIG wants to make the payments anyway illustrates the good old boy network that dominates Wall Street, especially when the executives are wasting the taxpayers' money.

But, the issue is greater than just AIG employees. The U.S. taxpayer is now on the hook for trillions of dollars. On March 18, 2009, the Federal Reserve gave notice that it intends to begin “quantitative easing”, or, in other words, it will print money to buy Treasury bills. It will print up some $1.25 trillion new dollars to buy up debt instruments. The U.S. government, being overwhelmed by the disaster, can no longer attract enough investor cash to meet its obligations. So, it has been forced to buy its own debt! This is, of course, the height of folly, but most of the so-called “economists” have never studied the Weimar hyperinflation 1919-1923, and are fixated on the Great Depression. So, they don’t know any better.

America, like Germany back in the 1920s, and UNLIKE both America in the 1930s and Japan in the 1990s, is the world’s biggest debtor nation, with a combined public/private debt to GDP ratio of some 4 to 1 (unprecedented in known human history), hyperinflation will be the result. During the Great Depression, in contrast, America was the world’s biggest net creditor. The net obligations arising out of the current bank-induced financial crisis will eventually collapse the American dollar. None of what we are about to go through, however, has happened as a matter of chance or fate. It has happened as a direct result of willful, wanton reckless disregard of people like Henry Paulson. Not just him, of course, although he is the most visible culprit, but, by a mass breach of fiduciary duty on the part of bank executives like him, to their various institutions. After having presided over the creation of toxic debt instruments that would eventually destroy the economy, he and they have sought unjustified bailouts for their own misconduct, bringing us all down into the sewer with them.

A horde of people just as irresponsible as Paulson exist at a wide variety of financial institutions. They are at Goldman Sachs, Merrill Lynch, Citigroup, Morgan Stanley, JP Morgan Chase (NYSE:JPM), etc. Some of them have been dismissed with Golden Parachutes. Others, like the bonus recipients at Merrill Lynch, and, now, at AIG, still work for the companies.

It is time that the United States of America sued for damages, on behalf of the companies which are now the wards of the State. Although technically private, given that it is operating by virtue of indirect gifts, obtained on their behalf by their political appointee and former Chairman, Henry Paulson, Goldman Sachs is also a ward of the State. The people involved in writing these derivatives, and the executives who authorized them, have all violated their obligations. Legislation must be passed, immediately, and without delay (and this IS an emergency, given the likelihood that such people will move assets to havens like the Cayman Islands, Switzerland, the Bahamas, etc.) to freeze all assets traceable to bonuses or other compensation, given during the period in which these toxic financial instruments were created.

Lawsuits must be filed to recoup losses, on behalf of the shareholders of the companies involved, including the U.S. government. The executives that have done this, including Henry Paulson, should be permanently barred from both serving in government and in the banking industry. They should be forced to forfeit all the ill gotten gains that can be traced to the toxic waste financial instruments that are now bringing the world to its knees.

Suing bankers and collecting damages would put the idea of individual responsibility back into the system. Rewarding misconduct with bonuses, in contrast, will permanently damage the system, and destroy all faith that Americans have in their government and institutions. In the long run, a failure to act will result in simmering anger and frustration, and will reduce productivity and prosperity. The law is meant to resolve such situations, in an orderly and fair manner. I am not suggesting that the American people, let alone the inhabitants of the rest of the world, will be made whole from such litigation. However, a person who loses an arm or a leg in an accident cannot be made whole simply by the award of money damages. Yet, the fact that people can sue for personal injuries keeps the lid on what would otherwise be chaos, in which the injured person’s family would attack the person's responsible for the accident to exact vigilante justice.

In the next 10-15 years, as the true extent of the fleecing of America becomes more and more apparent to the people, I’m afraid we may see guillotine justice, of the type we saw in revolutionary France. The anger of the people must be channeled into more appropriate paths. Taking strict legal action to recover damages against the bank executives will prove that government is still by and for the People, and will prevent America from exploding into anarchy, as the people begin to realize that their money has become nearly worthless over time.

The end result of the acts of our government, which are being taken in the hope of preventing a “Greater” Depression, will be hyperinflation that wipes out part or all of the American middle class. We do not have the luxury of countries like Japan, in the 1990s, or America, in the 1930s, of having either a depression or a stagnation resulting from the printing of money, necessary or not. The last time money was heavily printed by a big debtor nation, like the United States now is, was during the Weimar Germany hyperinflation from 1919-23. That episode of money printing utterly wiped out the German middle class. The anger that simmered, afterwards, culminated in the election of the extremist National Socialist Party (the Nazis) in 1933.

Absent appropriate retribution being exacted upon the parasites who are responsible for the current financial catastrophe, extremist parties could very well come to power again. It is, therefore, essential, that the human need for vengeance upon a den of vipers and thieves on Wall Street be channeled into legal means, and the anger assuaged. We live in a world of instant electronic communication. So, I would include places like Charlotte, NC and London, England in a general description of what is now “Wall Street”, and hope that the British government takes similar action against the primary parasites.

A legal framework by which retribution for the wrongs done, could be obtained, already exists. We need only make use of it. It is time to use the law for its intended purpose. Such lawsuits probably won’t result in the recovery of even a fraction of the cost of the financial debacle. However, we CAN insure that many of the miscreants who caused the world financial collapse are bankrupted. It would also be nice if the worst of the bunch were put in prison. We CAN insure that they are not allowed to become further enriched, at our expense. The government needs to do more than merely block payment of the AIG bonuses. It must actively punish those responsible for this financial crisis, even if that punishment may include people who were once at the very top of the political pyramid.