It seems the bogus bailouts have set the U.S. government down the wrong path. The correct response would have been to let the firms who made terrible decisions go out of business. Instead, they were bailed out, which really will set up only more irresponsible risk-taking in the future. Now, the government is attempting to mitigate this risk by micromanaging firms and executive pay.
This article reports on how the Treasury is attempting to regulate executive pay at banks. On one hand, this seems reasonable because the government loaned out billions of dollars, and they should be allowed to attach whatever strings they like. But this misses the whole point. If you allow the market system to function like it can, then companies that take excessive risk will suffer the ultimate penalty: they will go out of business. If you keep bailing them out, they have no incentive to change their behavior.
This bailout will probably lead to an even bigger financial crisis 20 years down the road. Companies will find a way around these regulations and engage in excessive risk one way or another. By declaring that some banks are "too big to fail", you are guaranteeing the presence of large, inept banks that will continue to drain taxpayers for decades.
I wish more people understood economics.
