Kabuki Theater of Outrage, Act III. Unscrupulous borrower Sen. Chris Dodd struts on stage. Fox Business reporter Rich Edson turns on the spotlight:

Senator Chris Dodd (D-Conn.) on Monday night floated the idea of taxing American International Group (AIG: 0.9768, 0.1967, 25.21%) bonus recipients so the government could recoup the $450 million the company is paying to employees in its financial products unit. Within hours, the idea spread to both houses of Congress, with lawmakers proposing an AIG bonus tax.

While the Senate constructed the $787 billion stimulus last month, Dodd unexpectedly added an executive-compensation restriction to the bill. That amendment provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009,” which exempts the very AIG bonuses Dodd and others are seeking to tax. The amendment is in the final version and is law.

Also, Sen. Dodd was AIG’s largest single recipient of campaign donations during the 2008 election cycle with $103,100, according to opensecrets.org.

Need to make my airsickness bag triple-strength this morning.

Update: David Freddoso has more…

Here is the loophole, from the section of the stimulus package that deals with compensation rules for TARP recipients:

The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.

Frankly, it’s hard to imagine how the government could prevent such contracts from being honored. But the presence of this loophole, in black and white, certainly gives the lie to all of this phony outrage — by the senator who created the loophole, by the president who signed it into law, and by everyone else who voted for the stimulus package.