WASHINGTON - President Obama's apparent inability to block executive bonuses at insurance giant AIG has dealt a sharp blow to his young administration and is threatening to derail both public and congressional support for his ambitious political agenda.

Politicians in both parties flocked to express outrage over $165 million in bonuses paid out to executives at the company, demanding answers from the president and swamping yesterday's rollout of his efforts to spark lending to small businesses.

The populist anger at the executives who ran their firms into the ground is increasingly blowing back on Obama, whom aides yesterday described as having little recourse in the face of legal contracts that guaranteed those bonuses.

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But the bonus issue, in particular, is hounding Obama as he pursues his larger goals, in part because of the president's own repeated declarations of outrage -- offered again yesterday -- aimed especially at the firms that are feeding at the public trough.

In February, Obama announced tough new restrictions on executive compensation that promised an end to massive salaries for executives of failing companies. Similar rules were eventually written into legislation and hailed as evidence that executive compensation would be checked.

But reports about the latest AIG bonuses quickly undermined whatever political capital Obama has earned with his past efforts.

Answer: No, and No.

A little over a year ago, I was hanging out with a bunch of theoretical nuclear physicists at Stanford. To supplement their dreary incomes doing pure research in their various towers of academia, they put their super computers to work during their off hours doing price, volume, and volatility calculations for hedge funds. The buzz among these quants last year was that we were in la-la land.

Now those guys know a little something about nuclear fission, and their computers reach speeds approaching 500 teraflops (don't try; that's fast), so when they squeal in morbid wonder, " weeeee, we lost it," what they mean is that the world of derivatives has matastized to a place approaching infinity, and that it's grown beyond our ability to even guess how big it is.

As bad as things are, IMO, the destruction has barely begun.

Answer: No, and No.

A little over a year ago, I was hanging out with a bunch of theoretical nuclear physicists at Stanford. To supplement their dreary incomes doing pure research in their various towers of academia, they put their super computers to work during their off hours doing price, volume, and volatility calculations for hedge funds. The buzz among these quants last year was that we were in la-la land.

Now those guys know a little something about nuclear fission, and their computers reach speeds approaching 500 teraflops (don't try; that's fast), so when they squeal in morbid wonder, " weeeee, we lost it," what they mean is that the world of derivatives has matastized to a place approaching infinity, and that it's grown beyond our ability to even guess how big it is.

As bad as things are, IMO, the destruction has barely begun.

Congressman Peters' bill would create a 60 percent surtax on bonuses over $10,000 to any company in which the U.S. government has a 79 percent or greater equity stake in the company. Currently, AIG is the only company that meets this threshold. The 60 percent surtax would be added to the normal income tax rate, meaning that bonuses received this year by AIG executives paying the top 35 percent tax rate would be taxed at 95 percent. The remaining 5 percent would likely be paid in state and local taxes, so taxpayers would fully recover any AIG bonuses paid in 2009.