Otto von Bismarck usually gets the credit for observing that those who love laws or sausages should not observe how they are made. These days it is clear we must add the making of money to that list.

Bailout payments to the banks and other financial institutions have given the American people a closer look at what goes on at the places where more people get paid more money than anywhere else on earth or at any time in history, and it isn’t pretty.

The American people understand mistakes and we are always ready to extend a helping hand to members of our community. But we cannot tolerate selfishness and we cannot accept unfairness. Wall Street has failed badly, tarnishing not only its own brand but also the brand of American capitalism.

We love to see people get paid buckets of money for doing their jobs superbly, from Tiger Woods to Bill Gates, but it is infuriating to see executives at AIG get millions of dollars in “retention” bonuses that are awarded just for staying in their jobs, especially as unemployment rates are spiking.

It is also no comfort to see Congress respond to our sense of outrage by trying to tax these bonuses with a bill that is probably unconstitutional and almost certainly ineffective. It is time to stop playing whack-a-mole by attacking the symptoms of the economic failures and start treating the disease.

The Obama administration’s plan to find a way to take the “tarnished assets” off the books of the bailout companies is an important step in the right direction. Ground zero for the crisis is a big pile of securities we used to think were worth a lot of money. Now no one is sure how much those securities are worth. A lot of the fuss over the past six months has been about how to figure that out.

Wall Street has failed badly, tarnishing not only its own brand

but also the brand of American capitalism.

That includes the AIG bonuses, by the way, which, thanks to the same corkscrew thinking that got us into this mess, were based on the idea that we had to pay the people who thought up these securities extra to stay on and help us figure them out.

These securities are not just tarnished; they are all but radioactive as they are currently held. But just as eBay can help find buyers for the white elephants that you can’t move at your garage sale, the new plan will make it possible for these assets to find a good home. It is a huge improvement over the Paulson plan, which would have had the government buying the assets and trying to sort them out. The current plan encourages non-government sources to buy the securities.

A market-based approach that makes it possible for the kind of people who are good at ferreting out value to start making sense of these securities is a good way to restore credibility to both the valuation and the process. The government’s role will be to support the transactions and provide a floor for the losses. Most importantly, the taxpayers will benefit from any increase in value, an element that has in the past been omitted from government-subsidized programs.

Critics complain that this is yet another welfare payment to Wall Street bankers. They have a point. It is never ideal to set up a system where the buyer gets most of the upside if the asset pays off and the government takes the hit if it doesn’t. But that is a price we have to be willing to pay to get these assets sorted and it beats the alternatives.

The bonuses at AIG and elsewhere, though, make it clear that there are some additional steps we must take.

First, we need immediate and comprehensive disclosure about the program. We should be able to track every bailout dollar and every tarnished security online in real time, along with data about the quantity and amount of loans the institutions are making after receiving government funds.

At the same time, every company that has accepted bailout money must commit to deferring bonuses until the government has been repaid. We should also be very careful to prevent executives from spring-loading their future compensation by using what are clearly temporary low valuations of stock and assets to reset their benchmarks.

Third, the government, as a major shareholder, must insist on immediately replacing some board members at each of the bailout companies and the boards must make it clear to the executives that their duties include restoring not only the company’s financial stability but its reputation as well.