Today, Congress is discussing if and how to create a systemic risk regulator for the financial industry, which would oversee all financial institutions and prevent activities that could pose a threat to the entire economy. To analyze the feasibility and necessity of such a regulator, CNBC turned to President George Bush’s Deputy Press Secretary, Tony Fratto, who was introduced as a “CNBC Contributor.”

Fratto’s main point of concern with the push for regulation is that Congress is “dangerously” motivated by “vengeance” and might over-regulate:

Congress right now, Washington in general, is motivated — dangerously — by vengeance right now on the Wall Street firms and I think that’s a real concern. I know it’s a concern on the Street right now.

Watch it:

CNBC has been under fire for pandering to investors and billionaires, while failing to report that Wall Street was over leveraged, taking on too much risk, and in a position to implode the economy. So who does CNBC turn to to discuss policy aimed at preventing another meltdown? A Bush flack who:

- Said admitting that the country is in a recession was “relatively irrelevant” when implementing economic policy.

- Falsely claimed early last year that no one was predicting a recession.

- During the original TARP debate, “sought to beat back efforts to limit the pay of CEOs whose companies would draw assistance under the legislation.”

- Argued that TARP was “unfairly characterized as a boon to Wall Street at the expense of Main Street.”

Furthermore, Fratto worked for an administration that unveiled a sweeping deregulation plan just months before the economic crisis hit and appointed regulators who made it clear they planned to deliver less supervision over the financial services industry. Fratto also served as communications director for former Sen. Rick Santorum (R-PA), who just last week said “I really do believe that the fundamentals of American economy is [sic] still strong.”

Seriously, CNBC? Was Phil Gramm unavailable?

Today, the House Financial Services committee held a hearing to examine the regulation of systemic risk in the financial services industry. Committee chairman Barney Frank (D-MA) has been outspoken in his desire to see a systemic risk regulator — most likely the Federal Reserve — that would oversee all activity, across the spectrum of financial institutions, and flag behavior that is threatening to the entire system (like that undertaken by, oh, AIG).

Frank sat down with ThinkProgress today to explain his vision for the regulator and why the role should be filled by the Federal Reserve:

And what we mean by it is somebody who is able to say to any entity engaged in financial activity, ‘no you can’t do that in that degree. You are way over leveraged. You don’t have enough capital.’ [...] Now I said, any entity. People said ‘well, are they going to regulate hedge funds or private equity?’ The answer is yes, all of the above. If you tell them to regulate this, that, and the other institution, I guarantee you that within a month there will be a new institution that’s outside the statute. So they will regulate activity.

Watch it:

The Treasury Department is expected to lay out its plan for a risk regulator soon:

The U.S. Treasury is expected to seek not only a stronger Federal Reserve, but tougher capital standards for banks and better derivative market clearing and settlement mechanisms. Proposals for better consumer protection and more aggressive oversight of hedge funds and credit rating agencies are anticipated, as are new ways to unwind big companies whose outright failure could do wide-scale economic damage.

According to Reuters, “many of Treasury’s initiatives closely resemble an agenda for regulatory reform” designed by Frank.

On the front page of the New York Times’ business section today, economic writer Andrew Sorkin argued in favor of paying out the AIG bonuses. He cited “the sanctity of contracts” to warn that “the business community” would panic if the government started “abrogating contracts left and right.” He also claimed that the bonuses were necessary to retain AIG employees, who are needed to turn the economy around: “A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.”

This morning, ThinkProgress sat down with Rep. Barney Frank (D-MA), who chairs the House Financial Services Committee and has called for the firing of AIG executives. When asked to respond to Sorkin’s claim that only AIG employees can navigate the economy out of the mess they created, Frank dismissed it as “nonsensical”:

That’s nonsensical. It’s clear they made a lot of mistakes and we need to undo what they did. If they really understood what they did in the first place, seriously, they probably wouldn’t have done much of it. Secondly, when you are trying to undo something, it is often not the case that the people who did it are the ones to put in place. People are sometimes committed to not admitting mistakes. … So that argument I think is in fact almost counter, because the argument that you take the people who made the mistake and put them in charge of undoing the mistake goes against the human impulse not to admit a mistake.

Watch it:

Sorkin also effectively endorsed AIG executives holding the American taxpayer hostage, saying that if they are fired, they “might simply turn around and trade against A.I.G.’s book”:

So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.

Though Sorkin seems to have no problem with such a hostage situation, it is clearly part of the “perverse incentives” he discussed with Rachel Maddow last night: “If a deal makes money for the company, they make extra money. But if it loses money they don’t lose anything.” Apparently the New York Times’ chief financial journalist has no problem with this perversity.

Bailed-out insurance giant AIG just revealed that they would be paying over $165 million to traders “in the very group that caused the company to fail.”

Lucky for these traders, they’re collecting their bonuses under the Bush tax system that lowered income tax rates for the richest 2 percent of Americans.

According to our analysis, thanks to the Bush tax system, these traders are taking home $7.5 million more then they would have in the 1990s.

In 2000, this $165 million would have to have been taxed at 39.6 percent (the top marginal tax rate for top income earners that prevailed through the 1990s). Now, thanks to the Bush tax system, they’re only paying at 35 percent and saving themselves over $7.5 million.

This is assuming that most of this bonus income is taxed at the highest marginal tax bracket (a reasonable assumption based on typical base salary for Wall Street traders and the massive size of these bonuses).

The Obama budget would eliminate these Bush tax bonuses in order to cut taxes for 95 percent of American families and invest in health care, energy, and education.

See how much your family would save from President Obama’s Making Work Pay tax credit here.