In true sadomasochistic fashion, it is a joy to read the comments posted in response to the Wall Street Journal's ominous article today, "U.S. Eyes Bank Pay Overhaul."
Want to strike fear and loathing into the hearts of the overclass? Just suggest that the Obama administration is "in early talks on ways to curb compensation across finance."
"Goodbye free markets. Hello state control."
"Never in my wildest imagination would I ever have dreamed this great nation would be turned into a Socialist Republic in my life time."
"Welcome to '1984.'"
And so on.
The hysteria is risible on two levels. First: As Yves Smith at Naked Capitalism observes, the Journal's big scoop does not mean that Timothy Geithner is going to be setting wage levels at individual firms. "Team Obama," as she puts it, isn't likely to "do more than set guidelines and principles."
Second: When markets fail, it is right and proper for government to step in. To do otherwise is a dereliction of duty. As discussed here two weeks ago in "How Obscene Wall Street Salaries are Proof of Market Failure," there is a strong case to be made that bad incentives encouraged irresponsible risk-taking. The bottom line is that traders stood to make outsize gains from big bets that could put an entire company -- not to mention the global economy -- at risk if the bet went wrong. Fixing those broken incentives is a fundamental part of making sure Wall Street doesn't repeat this sorry fiasco for another 80 years.
The Journal observes that "the compensation effort is the latest example of the government's increasing focus on aspects of the financial sector that once were untouched." But who is to blame for that? Nosy, intrusive government officials, or bankers who failed to properly manage risk?
If you want to bid adieu to free markets, please direct your sweet sorrowful parting words to the people who were primarily responsible for blowing up the global economy -- and not to the governmental officials attempting to clean up the wreckage.