Henry Kissinger said power is the ultimate aphrodisiac. He would know. After all, he dated Candice Bergen and Marlo Thomas and the only thing sexy about him was his job title.

America is a capitalist country governed by a representative democracy and right now, American capitalism and American democracy are in a tug-of-war over where power will be centered — with nothing less than the global economy hanging in the balance. On one side is capitalism, profit motive, and the power of money. On the other side is what my eight grade social studies teacher called “demos kratos,” community, and the power of the people. The arena for this battle is today’s House capital markets subcommittee hearing where Edward Liddy, the CEO of AIG, is testifying about $450 million in annual bonuses his company is paying out after having been saved from bankruptcy by the American taxpayer.

Liddy is in a no-win situation. He wasn’t in charge when the decision to pay these bonuses was made. He’s just the guy who was named to take over once we bought control of AIG under our previous president. His job is to give honest answers to tough questions that our elected representatives have to ask now that the U.S. government has basically taken AIG’s title as the largest insurance company in the world with an investment of $180 billion in bailout money.

Committee members should resist the temptation to waste time detailing their personal feelings and get to the nuts and bolts of these bonus payments. Because when they do, and when the American taxpayer learns the full story, there will be plenty of outrage to go around. As upset as people are at the idea that AIG would be paying bonuses at all, just wait until it becomes known exactly who is getting this $450 million and exactly where they are. These people are in AIG’s Financial Products Unit. The FPU, run by former junk-bond peddler and Michael Milken associate Joseph Cassano, was the department that basically invented the credit default swap (an insurance policy on mortgage-backed securities) and the market for their derivatives. Under Cassano’s direction, these people cooked up a scam to charge fees for using AIG’s stellar credit rating to add value to investments (like MBS’s) traded by its clients — but without setting aside nearly enough capital to off-set the risk.

When the housing market crashed and those securities went bad, AIG had to pay up and lost its credit rating in the process. Contractual obligations due to that change in credit rating then required billions more in payments and, because AIG didn’t have and couldn’t borrow the cash, we bailed them out. So it was this exact department that traded so much debt that the global market in CDS’s has grown to an estimated $62 trillion, but they had no idea what they would do if it all went wrong. And these are the people being paid $220 million in bonuses for 2008, $165 million of which went out last Friday. Not to fan the flames of fury or anything, but of the 400 or so people in the FPU, about 375 work out of the London office. So we’re talking about hundreds of millions of American taxpayer dollars being paid to people who don’t even live in America.

From the capitalism side, they’ll say the contracts to pay these bonuses were in place before the bail-out and they have to be honored because a contract is a contract. They’ll say these people are essential for “unwinding” existing CDS’s and derivatives so the department can be sold off at the maximum price. They’ll also say we’re talking about “retention bonuses” designed to keep these people from going somewhere else.

But a contract wasn’t a contract when the United Auto Workers had to re-structure their agreements with Ford, GM, and Chrysler before any automaker bailout could happen. It also doesn’t make much sense to think the people who didn’t see (or didn’t want to see) the problem coming are the only ones who can fix it. And I wouldn’t worry too much about them leaving. Where are they going to go? Jobs are scarce in the economy these people helped create — especially in the financial sector — and there is no more “toxic asset” than a resume with “American International Group, Financial Products Unit” on it.

Joe Cassano did pretty well for himself during his eight-year tenure as he buried us all in $60 trillion in bad paper. He made $300 million and as recently as 2007 said he couldn’t see AIG “losing one dollar in any (CDS) transactions.” Clearly he hasn’t learned a thing since his junk-bond adventures in the ‘80s and it seems Wall Street hasn’t learned anything from the Great Depression in the ‘30s.

So the question of who should have the power in this new global economy is easy to answer. Power should rest in the hands of those who learn the lessons of history, not those who seem destined to repeat it.

Kenny Mack is a multi-platform content provider living in Santa Monica who is shopping his book, “Word In Edgewise: The Collected Opinions Of America’s Smartest Columnist” to forward-thinking publishers. He can be reached at kennymack@gmail.com

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