Pay Regulation To Creep Into Wall Street

You cannot take their money and expect they won't have something to say about how you run your business. Well, Congress does have something to say, and today's something regarding executive pay is: Are You Kidding Me!

In an election year, when the government has allocated $860 billion to a bailout, given $250 billion already to the banks, given almost $40 billion to AIG, back stopped deposits in excess of FDIC insurance, and forced the takeover of Bear and Merrill and WaaMu and Wachovia, the executive pay of these same firms is an easy target. So Congress is taking aim.

http://www.reuters.com/article/ousiv/idUSTRE49R7WC20081028

Congressman Waxman has requested a break down of compensation from banks receiving half the bailout money. Don't worry you other half, a similar document should be in a Fed-ex pouch very soon.

Wall Street has always argued that it is a meritocracy, in a meritocracy pay for performance is fair, and that there should not be a cap on it.

This may be true, it may not be. In the old days, when Wall Street rarely committed capital, when it made its money on expertise and execution rather than prop trading, this was probably true. Now, when it makes its money on allocating capital, making directional bets, and competing with its customers with seemingly limitless funds, perhaps not. Profit derived exclusively from your wits is one thing, profit requiring the use of investor capital quite something else, irrespective of the brilliance.

Congress is questioning how much pay is merited while trillions of investor and taxpayer dollars are lost.

Wall Street has also always warned that capping pay would lead to a brain drain: that all those clever MBAs will go elsewhere; and that experienced deal makers and rocket scientist product guys won't have enough incentive to stick around. I for one think most guys still show up to work earning $1 million - $5 million instead of $10 million to $50 million, but thats just my opinion.

In any case, we are soon to find out.