Clawbacks are not especially intended to assess culpability or punishment or retaliation. They are simply a means of recouping lost investments, a cost recovery mechanism.

Clawbacks are similar to environmental cleanup cost recovery mechanisms enacted to pay for cleanups of historically created environmental disaster areas. The policy choice in shaping these environmental laws was whether to make the polluters pay for cleanup or the taxpayers pay for cleanup. In choosing to make the polluters pay of environmental cleanup, every party who was known to have done business with the disaster site was deemed liable, without regard to fault, to pay for the cleanup. It was assumed that the parties doing business with the disaster sites by dumping their waste at the site derived economic benefit from doing so. Therefore, there was some sense in which it was more just to make the polluters pay for the cleanup than to make the taxpayers pay for the cleanup. In the environmental arena, the polluters are held jointly and severally liable to pay for the cleanup.

The analogy here is that the One-percenters who derived trillions in economic benefit from collectively creating the financial disasters would be held to pay for the bailout through clawbacks. The clawbacks would not be an assessment of guilt or culpability. The clawbacks would be imposed based on the simple policy judgment that it is more just to have the One-percenters who derived economic benefit from creating the conditions necessitating the bailout pay for the bailout than to have the taxpayers who did not derive such benefits. The clawbacks would simply be the cost recovery mechanism for effectuating that policy judgment.

The author.

I would like to engage in this debate but have considerable difficulty for a number of reasons.

I agree with the writer that everyone must feel uncomfortable that many have made fortunes out of the sub-prime market while exposing their company, their shareholders, the country, and you and I to ever greater risk

At this time, however, we are only just beginning to identify the mechanisms in our financial and regulatory systems that have brought us to the brink of this meltdown. Were we clear on where the problems fully existed, we would have less of a problem right now in deciding the appropriate solutions.

Where does culpability lie? Is it with Cho’s ambitious salesman, rewarded for doing well what he was asked to achieve? Is it with heads of the businesses who believed, and many who still believe, that the market will right itself if it can just package another lot of sub-prime mortgages and find a bank with a credit line to buy these? Is it with people in the regulatory authorities that failed to exercise properly many of the controls available to them? Is it with Congress, who failed to exercise proper oversight and enact laws whilst fully knowing that financial markets were running rampant? Or is the culpability with us, accepting knowingly mortgages that would place us at risk and maxing out our credit cards without the means to repay them except by further ever escalating loans?

I cannot and will not lash out blindly finding culprits to penalise. I am neither judge nor jury. I will not do so out of envy or seeking an eye-for-eye or out of a sense of an inequality of justice.

I do respect the law and if laws have been broken then clawbacks are just. For example, we in this country under the Law of England and Wales exercise claw backs against those found to have gained from criminality.

I have only small issues with capping the salaries and bonuses of those whom may be the beneficiaries of the bailout money, even though I think that this is just a populist and not very well thought out measure that is a distraction from the main and much more critical issues.

Retrospective retribution against those who have may committed no crime worries me far more, unless you seek, and feel confident in defining, a breach of moral law in a way that we can all agree. Maybe doing so against fat cats in Wall Street gives me momentary satisfaction, but the realisation of the precedent it creates quickly removes any such pleasure.

When hurt in the way that we are seeing our countries hurt and many of our citizens hurt, it is natural to look for scapegoats onto whom we can direct our anger. Was this not the way that George W. Bush persuaded his country to invade Iraq after 9/11? Was our target right then and was our response right then?

Retaliation, for in a way that is what claw backs are, against a person or group in response to perceived wrongdoing is best determined with distance between yourself and the event that is causing your anger.

So all of these reasons are why I have difficulty in joining in properly this debate at this time.

Update I am listening to President Bush live on my TV. Hearing what he has to say, I realise that I left him off my list of those culpable. Now, I can truly say mea culpa

I had never heard of the term before, but I like it and it somehow seems totally appropriate when used in this context of clawing back the money that these guys made, some of them 25 year salesmen with no real "skills" but raking in $100,000 a month bundling sub prime mortgages into CDO.