The New York Times publishes a compelling letter from an AIG executive to Edward M. Liddy explaining his situation and why he is resigning. He is leaving and donating his entire bonus to those hit by the economic downturn. He makes a number of key points:

1. “I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.” Message: Congress and the president got the whole thing wrong.

2. “At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.” Message: The Fed, Tim Geithner and Liddy didn’t exercise a whole lot of common sense and might have headed off the firestorm with a heartfelt chat with employees.

3. “The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to ‘name and shame,’ and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.” Message: Is this the America everyone wants to live in?

Now Ben Bernanke and Tim Geithner want the power to seize companies, abrogate contracts and repeat the AIG experience presumably at will. Do we honestly think that this sort of institutionalized capriciousness is a good idea? The Washington Post quotes an official in the private-equity industry: “Anytime you give a political entity sweeping powers, it’s something that you want to be very careful about.” Indeed. We should think very carefully before replicating this sorry tale again and again —  thereby imposing the threat of similar treatment throughout the financial sector, which after all is the linchpin of our economic recovery.