This is a rush transcript from "The Journal Editorial Report," March 21, 2009. This copy may not be in its final form and may be updated.

STUART VARNEY, GUEST HOST: Coming up next on "The Journal Editorial Report," Obama's AIG outrage. The president stirs a political panic that threatens to undermine his own recovery agenda.

Plus, the week's biggest losers. Will Tim Geithner and Chris Dodd be the first victims of the populist pitch-fork brigade?

March madness is here and it's a cash cow for colleges. But should the student athletes see more of the green?

"The Journal Editorial Report" begins right now.

VARNEY: Welcome to "The Journal Editorial Report." I'm Stuart Varney, in for Paul Gigot.

First up, Barack Obama's AIG panic. Calling the bonuses paid to executives outrageous, the president stoked the beltway bon fire over AIG this week and helped turned it into a full-blown political panic. But will the populist furies that have been unleashed derail his plans to repair the financial system and revive the struggling economy?

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; columnist, Mary Anastasia O'Grady; assistant editorial page editor, James Freeman; and senior economics writer, Steve Moore.

Dan, what a political brawl.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: A brawl? Usually with brawl you need two sides fighting. I only saw one side fighting in this thing.

VARNEY: I saw three or four.

HENNINGER: No, I just saw the public sector, the Democrats and the White House piling up on the private sector. and it culminated at the end of the week with the passage in the House of this bill to claw back 90 percent of the bonuses being received by these companies. And with the president, as you suggested, piling on and sort of leading this mob scene.

What is happening here I think is that politics, Washington politics, is beginning to simply overwhelm the subject of the financial credit crisis. And it's going to make it difficult going forward for the people who are trying to execute these policies to get them done.

VARNEY: Mary, was this an anti-Wall Street, was it an anti-market populist revolt?

MARY ANASTASIA O'GRADY, COLUMNIST: It looks a little like, as Dan said, piling on. But I think the public has some, you know, righteousness here. It has been watching the politician mishandle this crisis going back to last fall. The officials, the government officials were supposed to know what the books of AIG looked like, which includes having known about the bonuses. So the very fact that they didn't — that this was a surprise to them, I think people are reacting as kind of in a confidence crisis. They feel like, look, if you didn't know that, what do you know about this company?

HENNINGER: But, Mary, Tim Geithner admitted earlier in the week he had known about the bonuses. And Liddy told the Congress the Federal Reserve and Treasury were walking in lock step with them from last year. They too knew about the bonuses. They left this guy hang out to dry.

O'GRADY: Precisely. But this is why the politicians are, as you say, jumping on AIG, because if they don't, they are going to be the ones that get attacked. They are going to be the ones held responsible.

JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: That's right. I think if you can see a silver lining to all this, it is causing the lack of confidence in government management. And that's a good thing. I mean, if you think about all this talk lately of nationalizing banks, here's your example of what happens when the government nationalizes a financial firm.

Going back to last fall, shareholders never voted for this. The largest shareholders said the firm would have been better off in bankruptcy, Chapter 11, than this government rescue. Amazingly, blown $173 billion and the company is still limping along.

VARNEY: Steve, what do you make of this?

STEVE MOORE, SENIOR ECONOMICS WRITER: I like Dan's point that Barack Obama was swept into office on this kind of populous fury, this hurricane of discontent, and rode that into office.

And to Dan's point, Dan, it's almost like this hurricane has turned against him and he doesn't know what at that do about it.

I think there's kind of an irony to that, that American people are extraordinarily angry about it. And the anger is coming from the left and the right. On the left, you've got groups like Code Pink having these big rallies in front of AIG stores across the country. But also many of the groups on the right, who don't like the government involvement that James was talking about, are also infuriated by it. Right now, the Democrats have turned it into kind of a circular firing squad where they're shooting at each other trying to preserve their own political future here, which is very much in doubt people are so angry.

VARNEY: But, Steve, what people picked up on was the bonuses paid to AIG executives, not the money passed through AIG that went to places like Deutsche Bank and Goldman Sachs.

MOORE: This is kind of the final boiling point of the anger that's gone on about the stimulus plan, the billions, trillions of dollars of debt, about all the bailouts. I think this puts very much in jeopardy the ability for this Treasury Department in this administration to deal with the financial crisis which was what this was all about to begin with.

FREEMAN: Well, the bonuses are 1/1000th of what the movement has put into this company. But if you are really upset about the bonuses, remember why they happened. In 2005, Eliot Spitzer forced the long-time CEO of AIG out. The company to that point, AIG Financial Products, had not had these kind of contracts. All of those bonus contracts came later, in other words, after the government imposed its management of AIG starting in 2005.

VARNEY: So this is government versus private sector. That's what the brawl is all about, Dan?

HENNINGER: I think the bonus bill makes that pretty clear. They're going to impose a surtax of 90 percent of bonuses above to $250,000. If you're working in Citibank at all levels and they're going to take 90 percent of your annual salary away, why show up at work? Who's going to execute the revival of the banks and credit systems if you're taking 90 percent of their annual income away from them? There's something that cried out for leadership. If you want to put a surtax on them, don't make it 90 percent. Make it something that actually leaves them enough money to work through the year.

O'GRADY: Another thing this shows is, after the problem surfaces, the government will waste no time in making sure that it, you know, locks the barn door now that the horse is gone. They're running behind the problem all the time. They can't deal with the future problem. They're dealing with something that's already happened and is not that important.

VARNEY: Steve?

MOORE: This terrible bill that they passed this week, the 90 percent tax that Dan was talking about — by the way, Charlie Rangel, Dan, said — when he was asked why 90 percent, he said the states and localities will pick up the other 10 percent.

(LAUGHTER)

So this is 100 percent tax on these people.

Here's the big problem with this, Dan, is that a lot of people on Wall Street and just across America, corporate America said they're going to come — this populous frenzy, they're not just going to stop in terms of taxing the benefits of companies like AIG. They're going after any company. We're talking about 90 percent tax rates. Dan, we haven't seen that since 1960.

O'GRADY: But the...

VARNEY: Hold on. Hold those thoughts, everyone.

Much more on the outrage of AIG when we come back. Will bailout fatigue jeopardize the administration's future plans to stabilize the banking system? And the biggest losers. Who stands to suffer the most from the populist frenzy?

(COMMERCIAL BREAK)

(FOX NEWS BREAK)

(BEGIN VIDEO CLIP)

SEN. CHRIS DODD, D-CT: I can't point a finger at someone who's responsible for authoring the language that put those dates in. I can tell you this much, when my language left the Senate, it did not include it. When it came back, it did.

They came to us, staff, and asked for changes. And the changes at the time did not seem that obnoxious or onerous. And none of us and I certainly didn't have any idea about AIG and these retention bonuses. So the modification, the argument was, to deal with a potential flood of lawsuits that could come to the government over the matter. So we agreed to some modification at the time.

(END VIDEO CLIP)

VARNEY: Democratic Senator Chris Dodd of Connecticut first denying, then acknowledging his role in inserting language into the stimulus bill that allowed the AIG bonus payments to go forward. He could well end up one of the biggest losers in this whole saga.

We are back with a look at who else, and maybe what else stands to suffer.

Steve, to you first. Geithner and Dodd, the big losers of the week?

MOORE: It's hard to pick between the two of them because they're both the biggest losers here. The problem is this turned into a scandal because the Democrats keep changing their stories here, Stuart, about who knew what when. And the Chris Dodd story is a great one where one day he says I knew nothing, the next day says I did know something about it but the White House put me up to it. Tim Geithner had said last week he had just found out about this. Now we realize that, in fact, he knew about it for weeks and weeks. In fact, he was one of the people who approved the bonuses.

And the truth is I believe Tim Geithner has become so incapacitated in terms of his ability to do the job now, I'm not sure that, Stuart, he's going to survive this scandal.

VARNEY: Whether he survives or not, I don't know.

But, Mary, does his bank plan, which is going to be revealed this coming week, does that survive? Is that a casualty of this thing?

O'GRADY: I think it's in big trouble. And the reason is because the plan, when he brings it out, is going to cost another trillion dollars. It's going to subsidize private investors who hopefully, they were hoping will come in and buy some of this what they call toxic waste. I think the American public, as I said earlier, they've just had it. They have no confidence that the government has a plan.

Looking back on the bonuses, they look back at AIG and think, they should have known what the structure of the company was. They should have known what the commitments of AIG were and they didn't. How could they have confidence this new plan, and they're asked to open their wallets again? They're just...

HENNINGER: I'll give you a really big loser this week — Fed chairman, Ben Bernanke. Why? Two reasons. First, he floats this huge plan to buy treasuries, billions and billions of dollars. Should have gotten some lip from that. Gold shot up towards a thousand dollars. The dollar has been falling. He should have gotten more lip from it.

The second, even bigger reason, Nancy Pelosi, the House Speaker, comes out and announces that they, the House, were out of the loop when Ben Bernanke was bailing out AIG. She said we weren't consulted. In other words, she's putting space between herself and one of the primary architects of the resurrection of the economy. I think Ben Bernanke's got himself a new set of partners. It's called the politicians in the House.

VARNEY: But wait a second, if...

HENNINGER: It's a real threat to the independence of the Fed.

VARNEY: But if Geithner is down and the bank plan is down because of what happened this past week with AIG bonuses, surely Ben Bernanke is up because he now represents the solution to the bank crisis.

HENNINGER: The solution will just be flooding the market with dollars.

VARNEY: Yes, but he can do that without going to Congress for approval.

O'GRADY: But he can do it without affecting the bond market, the dollar, the price of gold. It will have a fallout. Just because they can get it through politically doesn't mean it doesn't have a cost.

FREEMAN: That's right. You're going to see a surge in inflation once the economy starts to pick up again. I think for exactly the reason you mentioned, all the bailouts now are going to come from the Fed because they can print money. They're not going to be able to get votes in Congress I don't think.

As far as the biggest loser, you have to say it's Mr. Geithner, because he is, after all, the architect of the AIG series of bailouts. How many have there been, four of them. As the Federal Reserve Bank in New York, the president last year, he's the one that committed the original sin with AIG. So, I think he's...

VARNEY: Steve, Steve, do you buy that argument, Steve? If we're in a deflationary environment right now, and some would argue we are on a global basis, is it inflationary to inject trillions of dollars into that situation? Do you buy the inflation argument?

MOORE: Obviously, we're not in an inflationary environment right now because there's no velocity of money. People have getting the money and they're sticking it under their mattress. But I think Dan is right, as soon as the economy starts to pick up steam — and hopefully that will be soon — you're going to see, I think, a resurgence of inflation and it could go to 5 or 6 percent.

The other lesson in terms of losers is the companies that got sucked into taking this government money in the first place. One of the lessons I hope that corporate America has learned is when the federal government is passing out money, it's never as free as it seems.

VARNEY: Go ahead, Mary.

O'GRADY: On the inflation front, I would say that unemployment is a lagging indicator. But you're already seeing commodity prices firm up. Oil's going up. And, of course, gold has gone up a lot. So the idea that we're in a deflationary environment right now, I don't think that's what commodity prices are telling us.

VARNEY: That's the last word, and it's from you, Mary. Thanks.

When we come back, did you fill out your brackets this week? The president did. That's right, March madness is here. It is a billion dollar industry. So should the college players be seeing more of the cash? There's a debate and it's just ahead.

(COMMERCIAL BREAK)

VARNEY: Yes, March madness is underway, and by many measures, the college men's basketball tournament is a cash cow. CBS is paying the NCAA more than $6 billion over 11 years for the right to broadcast the games. And the top teams generate millions in revenue each year for their schools — ticket sales, television rights, concessions and so on. So should the student athletes be seeing more of the money?

Steve, what do you say, pay them more?

MOORE: Stuart, do you see my tie, this orange and blue tie? This is my Fighting alumni tie and we lost this weekend. So, some other time.

(LAUGHTER)

Look, having been in Illinois and around big-time college athletics, these kids who are playing and making all of this money for universities that is hundreds of millions, most of them do come from low-income inner- city households. I wouldn't have a problem with paying a small stipend for the money they're making for the universities. But I highly object to the idea of paying these people huge amounts. They should be student athletes. If these kids want to make a lot of money, and they have the talent to do it, there's a place for that. It's called the National Basketball League.

VARNEY: This is incredible. Arch capitalist wearing his college tie, Steven Moore.

(LAUGHTER)

Let's refute this, Mary.

O'GRADY: I think Steve's totally wrong. First of all, I believe in the free markets. And these guys have a value and I think they should be compensated. Secondly, a lot come from very underprivileged backgrounds and they need the resources. Third, they're not getting an education at these schools. These schools are using them, you know, for all these ticket sales and everything but it's very hard for them to get an education while they're paying in this very competitive basketball environment. Lastly, you have a lot of under-the-the table scandals. That happens whenever you develop a black market. You have a lot of scandals where you find out later that, yes, they were compensated in some way, and that goes on, I think, in the college basketball a lot.

FREEMAN: I disagree on the value. Most of these guys could not make it as professionals. I think that big TV contract from CBS is based on the product and the product is a bunch of fresh-faced kids playing with passion for the love of the game and school spirit. If this becomes a professional league but not as good as the NBA, where the school is the sponsor on the uniform, I think the product is complete destroyed. They would be lucky to get a TV deal with...

(CROSSTALK)

O'GRADY: Then their income will go down.

HENNINGER: The biggest scandal beneath this story is the graduation rates of most of these players. Do you know what the graduation rate is for black basketball players at the University of Connecticut? It's under 25 percent. And it's often under 40 percent for most of these big schools. So they simply aren't giving them an education. If you were going to wave your hand and mandate a law, it should be these state schools should teach these students rather than forcing them to practice five hours a day.

FREEMAN: It's not just the schools. It's the players. I mean, they have a responsibility to go to class and they're given great opportunity. If they don't take it, that's not entirely someone else's fault. But I agree that the coach ought to be involved in this. This is probably what people should have been screaming to Jim Calhoun at press conferences about instead of his compensation. It's his graduation rate.

VARNEY: So, Dan...

(CROSSTALK)

HENNINGER: I don't think you should pay them, but I think you should educate them so when they get out of school they can earn a real living.

VARNEY: OK, my capitalist friend, Steven Moore, has an insert here. Steve?

(LAUGHTER)

MOORE: I want to raise one scandal with respect to college athletics, which is the universities are making, what, you said $6 billion over the next ten years on this. Huge amounts of cash. This is big, big business. Why don't if they use some of this cash that's coming in to lower tuition costs at universities? That's the real scandal. Double digit increases in tuition costs when they're making all this money on college athletics.

VARNEY: Mary, Steve makes a good point. The money does go to the schools. Whether they use it properly or not is another story. But it goes to the schools.

MOORE: Now he's getting into lots of other market distortions that go on in higher education. No, it's true.

(LAUGHTER)

One of the things these colleges complain about is, under Title 9, they have to give equal amounts of investments in different sports which don't earn money. So they use a lot of that money to support the rest of their athletics program. But the rise in college education, you won't be surprised to note, I think comes from the government. Because government funding of education is creating circumstances where supply is always — demand is always going to outstrip supply.

VARNEY: Real fast question. If I'm not mistaken, there is no serious move to play these young players serious money in the NCAA, is there?

O'GRADY: Unfortunately, not.

VARNEY: There is not.

HENNINGER: That's called corruption.

MOORE: Hear this.

(LAUGHTER)

VARNEY: Let's here it for markets, want it all.

We have to take one more break. When we come back, our "Hits and Misses" of the week.

(COMMERCIAL BREAK)

VARNEY: Winners and losers, picks and pans, 'Hits and Misses," it's our way of calling attention to the best and the worst of the week.

Dan, first to you.

HENNINGER: Well, it emerged this week that juries are now apparently using Twitter and Google to communicate outside the trial. People go out at lunch and Twitter and say, oh, my god, you have no idea what's going on to this trial. Or they go home and they dive into the Google swamp and get these half-baked rumors about the defendants. This violates hundreds and hundreds of years of criminal procedure. It's causing mistrials. It is causing trials to shut down. I would say, Stuart, basically, because of this technology, the end may be finally near.

VARNEY: Tough to shut it down though.

HENNINGER: Tough? Impossible.

VARNEY: Yes, indeed.

Mary?

O'GRADY: This is the hit and a miss. The hit is that more babies were born in the United States in the year 2007 than in any history — any time during the nation's history. And that includes the peak of the baby boom years.

The bad news is that 40 percent of those births were out of wedlock and that the teen birth rate — birth rate among the teenager mothers went up the second year in a row. While it's great news we're replacing the American population, something that's not happening in Europe, maybe the circumstances are not what — we could probably not call them suboptimal.

VARNEY: Indeed. Mary, a hit and a miss, thank you.

James?

FREEMAN: This is a hit for Gary Locke. Thee third time is a charm for President Obama selecting a Commerce Secretary. He had a great confirmation hearing this week. He's a free trader. We like that. Also, apparently, he pays his taxes.

(LAUGHTER)

VARNEY: My, God. Sarcasm is a low form of wit, and you know it, James.

(LAUGHTER)

FREEMAN: Pleasant surprise.

VARNEY: We'll take it. Thanks very much, indeed.

That is it for this week's edition of "The Journal Editorial Report." Thanks to my panel and to all of you for watching.

I'm Stuart Varney. Paul is back next week. We hope to see you then.

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