But some executives at private equity firms and hedge funds, who were briefed on the plan Sunday afternoon, are anxious about the recent uproar over millions of dollars in bonus payments made to executives of the American International Group.

Some of them have told administration officials that they would participate only if the government guaranteed that it would not set compensation limits on the firms, according to people briefed on the conversations. The executives also expressed worries about whether disclosure and governance rules could be added retroactively to the program by Congress, these people said.

HAINES: There were some scary stories in the paper over the weekend.

BURNETT: Mmm-hmm.

HAINES: About this kind of thing, regulating or somehow impacting executive pay, even among financial companies that didn’t take government money. It’s getting scary.

The government feels that it cannot take over large banks, there is no bankruptcy-type procedure that would work, and only deference to the CEOs of major financial institutions can get us out of this mess. This is a conscious strategy decision from the very highest levels.

I’d like to say: OK, but this is absolutely the last time we will try for a solution to our banking problems involving a private sector-led approach. Of course this would not be credible and bank CEOs know this. Instead, I propose the following.

If Secretary Geithner’s scheme works, we draw the lesson that our banks became too big and we aim to make them smaller relative to the economy moving forward. The regulatory agenda currently in progress - including for discussion at the G20 next week - would do essentially nothing to reduce the political power of big banks. We need simple caps on bank size, leverage relative to the economy and - this is harder - measures of interconnected tail risk (i.e., is everyone making the same kind of crazy loans?). Design a system with this in mind: regulators get captured and super-regulators get super-captured.

If the scheme doesn’t work, we draw the exact same lesson. And, of course, we should expect Chairman Bernanke to move forward with his Plan B (or is it Plan Z?): inflation.

In any case, our top political leadership needs to really sell some version of the following message. We let the banks get out of control and the cost will be enormous; our debt/GDP ratio will in all likelihood rise from around 40% to over 80%. We cannot afford to have the same problem again. We must break the power of banks before they break us all. And if you don’t think banks can do that much damage to economies, just look around outside the United States - the world is full of countries where growth is slowed or distorted by a financial system that becomes too powerful. This is not about tweaking the existing U.S. regulatory system; it is about complete change and - in many senses - turning back the clock to a financial system that was simpler, smaller, and much less dangerous.

NATIONALIZE: Experts agree on the means -- Insolvent banks that are too big to fail must incur a temporary FDIC intervention - no more blank check taxpayer handouts. (see Krugman on nationalization)

REORGANIZE: Current CEOs and board members must be removed and bonuses wiped out. The financial elite must share in the cost of what they have caused. (see Simon Johnson on reorganizing)

DECENTRALIZE: Banks must be broken up and sold back to the private market with new antitrust rules in place-- new banks, managed by new people. Any bank that's "too big to fail" means that it's too big for a free market to function. (see Mike Lux on decentralization)

Big bankers ruined our economy and now they are gaming the political system so they can profit even more off the crisis they caused. They must be stopped [...]

At the personal level, we know that the smart thing to do with our money right now is generally the less flashy thing. Paying off our debts and saving for the future protects us from the risks we can't afford to take in the current market. The same rules apply to the banks. This is a time for a level-headed government to step in and steer unhealthy banks away from more risky bets, and to help them stabilize in the name of economic security for America.

Nothing tells the bankers to keep on doing what they're doing more than an endless stream of free taxpayer money. The banks know that the government considers them too big to fail; if nationalization is off the table, what incentive do they have to act in the public interest?

In a basic sense, this is a fight against corruption. Not in the sense of a quid-pro-quo (though that may be there too), but in the sense of a corrupt ideology. For the most part, the world of economists, politicians and financiers is one elite web of influence. At some point, private profit took over as the only value to consider in building an economy, and it has never subsided. This is true of the thinking from both major parties.