It has begun

In this Wall Street Journal article by Deborah Solomon and Damian Paletta, they stated, "The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money" while at the same time "House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on legislation that could strengthen the government's ability both to monitor compensation and to curb incentives that threaten a company's viability or pose a systemic risk to the economy."

"This is not going to be about capping compensation or micro-management," said an administration official. "It will be about understanding what is the best way to align compensation with sound risk management and long-term value creation." In February, President Obama "said executive pay helped lead to a 'reckless culture and a quarter-by-quarter mentality that in turn helped to wreak havoc in our financial system.'"

Free market principles in banking allow bankers, investors and borrowers to take risk in order to create wealth. The borrower needs money for a business idea, the investor gives the bank the money needed to make loans, and the bank charges interest to the borrower in order to make a profit and pay interest back to the investor. In order for this system to work, incentives need to exist for people to choose this career.

If Doctors were paid one billion a year, everyone would clamor to be a doctor, however the limited school facilities that provide the education one needs to become a doctor would create a system where many compete for the few seats available. Conversely, if doctors were capped at $50,000 a year, we could accurately predict the demise of our health care industry as doctors would leave it and individuals not suited to practice medicine would become doctors.

Now analogize this to our financial industry. The best and brightest seize advantage of the few best business schools we have in this country in order to get the best advantage to work for a financial firm or other business in order to make a ton of money. That's their reward. However, this Administration is taking away the incentive people will have to choose this career. This Administration has an absolute failure of understanding how the free market works.

This is also clear in their ad nauseum arguments that this financial crises was somehow created solely by Wall Street greed. In a previous paragraph, three people are needed; borrowers, investors and creditors (banks). The Administration is currently blaming the creditors for the financial disaster without looking at the other two legs in this three legged stool. This entire event was precipitated by one group of people, the borrowers. There would have been no collateral debt obligations (CDO's) to be had if there were no loans to back them up. The unscrupulous lending of money to sub-prime borrowers was made possible only because of socially engineered policies like the Community Reinvestment Act of 1979 (Carter Administration) and Bill Clinton directing Freddie Mac and Fannie Mae to incur more sub-prime debt.

The solution to this financial debacle is not salary caps on bankers. The solution is to ensure that only financially sound individuals are able to take out home mortgage loans. That their incomes be verified. That they be required to put up 10% of the purchase price in order that they have a vested interest in not walking away from their home. When CDO's are collapsing because the sub-prime borrowers are defaulting, that tells you something, and that something has nothing to do with a banker's salary. The free market should be allowed to take its course and the banks that invested heavily in sub-prime mortgages, like Countrywide and IndyMac, should rightly collapse because of their unscrupulous lending practices. The banks should learn the lesson the government is not there to bail them out of their misdeeds; in order that there be an incentive to keep them from making bad loan decisions.

Lastly, it's a laughable statement when Administration officials are making pronouncements they will not be micro-managing banking institutions. Did they not fire the CEO of AIG? Did they not fire the CEO of GM? Did they not cut in half the advertising budget of Chrysler? Did they not force Chrysler into bankruptcy because the Administration did not want to negotiate five cents on the dollar for the hedge funds that were invested in Chrysler? This Administration is acting like that tin pot dictator in Venezuela, Hugo Chavez. I shudder to think how this Administration is going to treat Ford Motor Co. when Ford turns out better products and is more profitable without having nefarious government regulations controlling them. I shudder to think what's going to happen to America's Economic prowess as these nefarious government salary compensation regulations come to fruition. Good Bye America, it was great while you lasted.