[#image: /photos/54cbf3e1fde9250a6c402f84]|||How did we get into this mess? Visit our archive “Charting the Road to Ruin.” Illustration by Edward Sorel.|||

Also: A quick rundown of what bonuses look like at seven big TARP recipients this year.

For many U.S. taxpayers, the bailout was infuriating enough on its own terms: $700 billion of public money in all ($5,073 for every taxpayer) given to Wall Street for bingeing on risky bets and pocketing the profits, living high and leaving the government to mop up the losses. But … bonuses! That was an incitement to riot.

And so, Thain’s misstep notwithstanding, the top officers at six large tarp-infused firms declared they were forgoing bonuses this year. The headlines were dramatic, and they seemed to work. Editorial writers held their fire, public outrage cooled. But did all this falling on swords really mean no bonus season on Wall Street this year?

It did not.

Retreat in Style

The first cause for concern came well before the formal bonus season. It was the much-reported $440,000 junket last September to the Tuscan-style St. Regis resort at Dana Point, California, enjoyed by 70 high-performing employees of insurance giant A.I.G. The retreat, which included $23,000 for spa charges, was held less than a week after the company was promised its first $85 billion from a tarp fund separate from the one helping the banks.

In his office at 120 Broadway, Attorney General Andrew Cuomo started strategizing with his deputy counselor, Benjamin Lawsky, about how to stop what he would soon call “unwarranted and outrageous expenditures” by A.I.G. Civil charges could be brought, he decided—and would, if A.I.G. persisted in exploiting taxpayers. And so began a campaign on Cuomo’s part to rein in A.I.G. that would broaden to include nine tarp-infused financial firms and their top officers’ lingering hopes for bonus season.

Summoning A.I.G.’s new C.E.O., Edward Liddy, to his office, Cuomo demanded an immediate end to junkets. He threatened the company with legal action for “fraudulent conveyances”: engaging in business transactions without sufficient capital on hand. A.I.G.’s legal team saw that as a stretch, as the law seemed more relevant to bankruptcy proceedings, and A.I.G., thanks to taxpayer money, wasn’t bankrupt. But Liddy got the point and agreed to no more junkets.

Liddy had started at A.I.G. only a month before. He’d come from Allstate, and, at the Treasury Department’s request, had agreed to work for $1 a year, at least until the company’s fortunes improved. His predecessor was the problem. A.I.G. had let Martin Sullivan go last June after three quarters of hideous losses totaling $18 billion—but had not fired him. Its directors had reasoned Sullivan wasn’t responsible for the mountains of credit-default swaps—unregulated insurance-like contracts—that A.I.G. had written on mortgage-backed securities and had to make good on now that the supposedly risk-free securities had tanked. So Sullivan had been free to leave with a package that included a $4 million pro-rated bonus, $15 million in severance, and other benefits then valued at $28 million, for a total of $47 million.

As for Joseph Cassano, the executive whose Financial Products division was responsible for all those C.D.S.’s, he’d left in February with a $1-million-a-month consulting contract (since discontinued) and $69 million in deferred compensation. Only six months before, in a widely reported quote, Cassano had said of the $441 billion portfolio of C.D.S.’s he’d bet would not default, “It is hard for us, without being flippant, to even see a scenario with any kind of realm of reason that would see us losing one dollar in any of those transactions.” He is reported to have since repaired to his three-story town house in London’s Knightsbridge district, on a bucolic square with a private garden, and his lawyer declined to respond to an e-mail from Vanity Fair.