The nation seems all a twitter about Obama's move to impose salary caps on the people who work at firms receiving substantial financial assistance from the federal government.
In fact, reading some articles, one would think that the pay limits will ruin the free market as we know it.
Dave Krasne, a partner at a private equity firm, says in today's NY Times that "it would be a bad thing if Congress sets the precedent of passing legislation that caps compensation, and consequently productivity."
Evan Newmark, in yesterday's Wall Street Journal, goes to great lengths to explain why this strategy won't work. In his mind, "it's bound to end in disaster...because the Treasury pay guidelines run counter to the fundamental human truth that people act in their self-interest."
Newmark continues to explain that "the split on Wall Street between the good banks and the bad banks, the shareholder-owned winners and the taxpayer owned losers, will accelerate further."
Thus, disaster looms.
In my opinion, it is clear that investment banks that require billions in bailout funds to survive have clearly differentiated themselves from banks that are not so needy.
It is also clear to me that the "self-interest" Newmark refers to in his story has been seen in all its glory since the bailout. AIG execs hanging out at expensive spas, the new offices at Merrill Lynch, courtesy of federal funding, new jets, etc. and so on.
The self-interested folks on Wall Street have let their interests in the glitz overshadow their interest in the work of keeping a company profitable.
Thus, the caps. Seems reasonable to keep spending in check at bankrupt firms, and, sadly, it looks like the government needs to step in with some rules because the "self-interest" so prevalent on the Street makes it impossible for these execs to rein in spending themselves.
And rather than limiting productivity, one would think that these highly trained businessmen would work their asses off to get off the public dole.
They were fans of Reagan, were they not? Didn't these men rise up in righteous indignation when Ronald Reagan pointed out the glaring malfeasance shown when "welfare queens" drove caddies around in the 'hood?
Didn't they all celebrate when Reagan talked about the need to limit government entitlement programs to the poor?
So why now should the recipients of a trillion dollar entitlement program start squawking about restrictions on how THEY spend their federal dollars?