Executive Compensation Mania

To gauge the destructiveness of Barack Obama's proposed pay cap for firms who receive government funds, look at what private equity firms, among the world's most sophisticated investors who generate high returns, do when the buy a company. They usually give the CEO and key executives a chance to make more money, not less.

Instead, the President would rather score PR points then lead by explaining to the public that, as emotionally satisfying as it may be to punish financial executives, it won't help the economy to do so.

Moreover, the financially stronger TARP recipients are talking of raising private capital to repay the TARP investment and free themselves from political interference. Given the growing government restrictions, that will give such liberated firms a distinct competitive advantage over the weaker TARP recipients.

The upshot? The government's limits on compensation will reduce the viability of financial firms and increase the likelihood that taxpayers will see losses on TARP funds.