PhillyDeals: Compensation cap likely to miss the point

"This is America. We don't disparage wealth," said

President Obama

.

But, he went on, sometimes it's OK to dump on the wealthy: "We all need to take responsibility. And this includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves their customary lavish bonuses."

For the most-troubled companies bailed out by taxpayer billions, Obama yesterday capped executive pay at $500,000, plus stock awards that cannot be cashed in until those companies pay the government back.

By changing the way we pay these chief executive officers and their top lieutenants, the president said he expected to end this "reckless culture and quarter-by-quarter mentality" that "have wrought havoc in our financial system."

Now, we all like to see the arrogant humbled, the proud and dangerous brought to heel.

As Obama told CNN, "People are still getting huge bonuses despite the fact that they're getting taxpayer money, which, I think, infuriates the public."

And most of us, even the smartest and hardest-working, could live within our means for $500,000 a year. Especially if you sweeten it with future stock appreciation.

But whom will Obama's pay caps really punish?

Wall Street executive bonuses topped $18 billion last year, Bloomberg news says, despite the financial meltdown. That's a lot, but it pales before the $1 trillion plus that has been committed to rescuing the credit markets.

Who does Obama believe acted "shamefully" and "irresponsibly" in "paying themselves" these bonuses as their companies blew up?

JPMorgan Chase & Co. boss Jamie Dimon, who made $30 million in cash and stock in 2007, told investors: "I don't think the president of the United States should paint everyone with the same brush. By contrast, Goldman Sachs Group Inc. chief financial officer David Viniar told investors he wants to give the government back its cash so Goldman can escape government capital and executive comp restrictions.

Obama wasn't talking about them. He meant the CEOs who ran the companies that needed the biggest financial bailouts - Citigroup Inc., American International Group Inc., Merrill Lynch & Co. Inc. The CEOs of those companies will come under the salary cap.

But Citi's Sandy Weill, Robert Rubin and Chuck Prince, AIG's Martin Sullivan and Merrill's Stan O'Neal have been fired or retired. Obama's limits won't apply to them, or recover the millions they "paid themselves" as their companies drove toward the edge.

Instead, Obama's limits will apply to the newly appointed, the newly promoted, and those veteran managers now in charge of picking up the pieces. With our money.

That could be a problem. As bad as the economy has gotten, many of those people can go elsewhere and get paid better. And some are going.

Just yesterday, Susquehanna Financial Group L.L.P., a giant Bala Cynwyd financial trading firm that isn't taking government money and doesn't have to tell anyone what it's paying in cash, bonuses and perks, said it has lured away three risk arbitrage sales executives from Citigroup.

And taxpayer-backed AIG's chief executive, Edward Liddy, says it's a battle getting experienced insurers to stay, as more-profitable, less-scrutinized competitors hire them away and gain their accounts.

Somebody might have explained this to Obama. I vote for

Treasury Secretary Timothy Geithner

, who knows all about the limits of certain kinds of regulation.

When Geithner was president of the Federal Reserve Bank of New York in the mid-2000s, top bankers complained with growing urgency about investment banks and brokers that were manufacturing and marketing piles of dangerous subprime-mortgage bonds and derivative securities.

According to those bankers, Geithner told them there wasn't much he could do: The Fed only regulated commercial banks. And even if he could rein in the other financial players, nonbanks and offshore companies would be only too happy to take over questionable lines of business. In a global economy, what can one regulator do? Best leave it to the market.

Of course, when those non-Fed-regulated mortgage companies and investment banks started failing, they infected solvent banks, too. And the Fed ended up using its superpowers on them all.

In hindsight, Geithner was wrong about that: The Fed could have acted. Geithner was right about one thing, but he didn't convince his new boss: Partial solutions that only limit some people's behavior will distort the market, and that won't solve your problem.