Governments in the UK and US have substantial stakes in leading banks. They shouldn’t be deterred by inadequate contractual language in their emergency rescues and infusion of funds during a crisis – they should set some new rules where necessary to protect taxpayers, not incumbent bankers who caused this disaster.

The most obvious is to demand a full accounting, by department and desk – even individual where appropriate — of P&L and the bonus payment under consideration.

Anyway no one in mortgage backed securities, with the possible exception of overruled risk managers, should get any bonus at all. Other departments which have earned a big profit might be eligible, but these are individuals whose skills would earn them relatively modest amounts were it not for the bank balance sheet. How much of a bonus do they deserve for working at an institution with a huge balance sheet? One could argue that no one in a rescued bank should get a bonus at all – that would make all employees diligent about monitoring future risk across the entire institution.

Around the world small and medium size businesses are going bust, leaving employees and owners with little or nothing, because of the credit shortage caused by the crisis. And bankers should get bonuses which are essentially coming out of state funds. (Right, everyone argues the payments for bonuses, company jets, fancy sales parties, etc. are from separate accounts, but money is nothing if not fungible A billion left in the bank at RBS, or $4 billion at Merrill, is at least a step toward regaining solvency.)

If banks have become wards of the state, civil service level salaries should not be ruled out. Global banks are big, complicated, and risky – but how do they compare with running the Ministry of Defense or the NHS? Critics argue government is not particularly well run, but industry experts have said for years that Citibank, to take just one example, has never been managed properly.

In any event, we have enough banks under government protection, and a number that are still largely independent, to run a reasonably controlled experiment and see which institutions perform best over the next several years. And if RBS chafes at government controls, let the bank buy out the UK investment, at a proper return for British taxpayers.

Does anyone remember that when Chrysler got a government loan, the US insisted the company sell its jets and demanded warrants which made the US Treasury a nice profit when Chrysler recovered, Chrysler, perhaps inevitably, tried unsuccessfully to get the government to surrender the warrants.

Wasn’t it JFK during a steel crisis who remarked that his father had always told him that businessmen were sons of bitches?

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