Reform, as saying that "Edward Liddy [AIG's CEO] should testify under oath on why retention payments are going to thousands more people than first disclosed." Cummings cited an earlier Bloomberg News report disclosing that AIG was scheduled to give as much as a year’s pay to about 10 per cent of the staff at units that are being sold. Recipients were told to keep the awards secret.

On Wednesday Chris Dodd came clean. Yes, he had accepted language in the recent stimulus bill which OK-ed bonuses consequent upon bail-out money already released by the US Government. Facing a tight re-election race this year, and well aware that this admission would not play well with Connecticut voters, Dodd emphasised that he'd been pressured to OK the language by the Obama White House. Dodd thus passed the poisoned chalice to Treasury Secretary Geithner, White House economic czar Larry Summers and... President Obama.

Bonus are rewards for working hard. You don’t give them to thieves and deadbeats

At first the White House put up Summers to argue that America is a nation of laws, among them the law of contract, as applied to AIG employees. Only a man who had to resign the presidency of Harvard after claiming that woman are in many ways stupider than men (Summers quit in 2006) would be capable of such a folly.

Obama is in the process of asking millions of Americans - autoworkers, pensioners, veterans - to accept annulment of contractual obligations to them by the US government. Suddenly they're asked to respect retention contracts to AIG losers, many of whom have quit the company anyway.

Tossed on the third rail by Dodd, scorched by Republican jeers for hypocrisy and double dealing, the White House rushed into damage control. Invective against the executives of AIG poured from Obama's lips, although not so fierce as the suggestion by the Republican senator from Iowa, Chuck Grassley, that the AIG top brass "follow the Japanese example and resign or go commit suicide".

After reading their constituents' emails, taking phone calls and watching the talk shows, on Thursday, after about 30 minutes of debate, 243 Democrats and 85 Republicans joined in voting 'Aye' to a House bill that would impose a 90 per cent tax on bonuses given to employees with family incomes above $250,000 at AIG and other companies that have received at least $5bn in government bail-out money. It would apply to any such bonuses issued since December 31. It was opposed by six Democrats and 87 Republicans. The Senate is passing a slightly more restrained version.

Rough though the week has been, there is a silver lining for the White House. It stems from the very word that has landed Obama and his team in such trouble - 'bonus'. A bonus is something people can relate to. You hope to get it at Christmas. It’s a reward for working hard. You don’t give bonuses to thieves and deadbeats.

Yet at the same time as the uproar over $165m in bonuses is in full spate, Obama has approved bail-out of AIG to the tune of about $200bn, much of it passed on to the infamous 'counterparties' like Goldman Sachs and foreign banks.

Among those who have pointed this out is former New York governor Eliot Spitzer, who contributed an acrid column to the Slate website. It's his first surfacing since he was politically destroyed in a sex scandal, certainly contrived by major Wall Street players, worried that when the roof fell in - as it did - he would be telling his attorney general to issue indictments.

The fact that Spitzer feels secure in entering public life again, lashing the Wall Street gangsters, shows how vulnerable Obama and his administration are to charges that they have no serious plan beyond bailing out the big Wall Street banks, and no intention of asserting control of the assets they substantively own, by formally taking them over.

Obama is dancing on the edge of a volcano, and already he's been burned – deservedly so.