I think this is related to the questions you asked earlier about Simon Johnson's piece on bonuses. From Edward Harrison on naked capitalism:

I saw Bill Moyers' recent interview with Bill Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s (click here to watch it).

I sent it along to a few friends to get their comments. One of them, Tom Naylor, author of several books including the international best seller Hot Money and the Politics of Debt, wasn't impressed.

I called Tom to chat. He told me that guys like Black love "conspiracy theories" but they miss the bigger picture, namely, the "the whole financial system and the incentive structure that supports it is corrupt."

We started talking about bonuses on Wall Street and at pension funds. Here was some of our exchange as I recall it:

Me: Tom, I see two systems developing, one where public sector workers get cushy pensions and one where private sector workers see their retirement dreams evaporating in front of their eyes.

Tom: That's why we need one state pension system which guarantees pensions for everyone. This notion of defined benefits for some and defined contributions for others is stupid.

Me: Yes, I agree, but I am against one mega fund where power is concentrated in too few hands. Interestingly, before CPPIB or PSPIB were created, pension contributions were invested in non-marketable government bonds.

Tom: Precisely, they were safe and now they are at the mercy of Casino Capitalism.

Me: You didn't think much of that Bill Moyers' interview?

Tom: No, I didn't think much of it. Black is missing the bigger point thinking you can regulate a better system but the problem is that the whole financial system, and the perverse incentives that feed it, are corrupt. The meltdown exposed this. I would abolish bonuses all-around, including at pension funds.

Me: Really? That is blasphemy! They will say you are against financial innovation!

Tom: So what? Let them get a real job if they don't like it. These people are social parasites. They've innovated so much that they brought the whole global financial system to its knees, causing social devastation as unemployment soars around the world.

Me: But what about fixing the incentives like fixing the benchmarks?

Tom: You know they will always find a way of tinkering with the benchmarks. Besides, benchmarks are part of the problem because they compensate people for taking reckless risks.

What is the TARP IG looking at? Bonuses.

That's what Simon Johnson I think was getting at - the outrage over bonuses DID focus on the right thing, it just did so in too narrow a way. The real question is whether or not we can regulate the current system at all given the perverse compensation structure. It's not just that there were fraud in these transactions, it's that the system is set up to encourage and reward fraud.