Bonus Bill Knocks Investors Off Balance

It seems the tensions between Wall Street and Washington are nearing the boiling point. And it could be one nasty explosion.

The acrimony stems from the way Congress is responding to the outrage over the AIG bonuses.

As Fast Money series producer John Melloy wrote in his blog, hard feelings are widespread over the bill in Congress which puts a 90 percent tax on bonuses for the employees of companies that have received at least $5 billion from TARP. The bill has already passed the House and a Senate version is poised to pass as soon as next week.

French Revolution For Banks

"Banks are under siege and their primary asset is their people," says Robert Sedgwick, head of the executive compensation practice at law firm Morrison Cohen in New York. Under the bill, banks including JPMorgan Chase , Bank of America , Citigroup , Goldman Sachs and Morgan Stanley could struggle to retain staff, Sedgwick says.

"I'll be surprised if anyone's here tomorrow," joked one senior equity salesman at a bank that received TARP money, adding more seriously that the bill "penalizes the people that are trying to earn their banks' way out of the industry's problems."

And banks are unlikely to be able to contest the bill, adds another banking representative, who asked not be named because he was not speaking on behalf of the bank. "At this point, it's like the French Revolution -- the mob has got the banks' heads in the guillotine," he says.

"If the Federal Government can capriciously and retroactively change the basic rules of business and contract law, it is difficult to expect hedge funds and private equity shops to take big chances on government sponsored assets regardless of the potential returns," states a note by Strategas Research Partners to clients today.

Outrage Or Political Pandering?

Of course Washington's outrage is real, but some people including our own Jeff Macke thinks there's an element of showmanship involved too. “It seems to me the lawmakers are cherry picking issues so they can rail at Wall Street because it’s popular with their constituents,” adds Jeff Macke.

He makes an interesting point and we're hoping you'll weigh in. What do you think? Are lawmakers imposing heavy taxes on some bonuses to increase their popularity with voters?

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Trader disclosure: On Mar. 20th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AA), (AAPL), (BAC), (EEM), (FXI), (TCK); Seymour's Firm Owns (PBR); Terranova Owns (KCE), (FXC), (XBI), (BRCM), (WYNN), (INTC), (JOYG), (DELL), (XOM), (IBM), (POT), (X), (JPM): Terranova Owns (COP) Calls; Terranova Owns (HESS) & (HESS) Calls; Terranova Owns (DIS) & (DIS) Calls; Terranova Owns (AMGN) & (AMGN) Calls; Macke Owns (GE), (SDS), (POT); Macke Is Short (BRK.b); Najarian Owns (C) Call Spread; Najarian Owns (GS) Call Spread; Najarian Owns (GD) Call Spread; Najarian Owns (MS) & (MS) Calls; Najarian Owns (POT) Call Spread; Najarian Owns (MSFT) & (MSFT) Calls; Najarian Owns (TGT) Call Spread; Najarian Owns (XHB) Call Spread

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