This is a bad precedent

But remember, they're not socialists. [Link]

The pre-weekend information dump included an announcement by the Federal Reserve and Treasury Department that the federal government proposes to extend its control over pay packages beyond financial institutions which received bailout funds.

According to the press release, the government proposes to monitor and, if need be, veto pay packages at any banking institution subject to federal regulation:

Flaws in incentive compensation practices were one of many factors contributing to the financial crisis. Inappropriate bonus or other compensation practices can incent senior executives or lower level employees, such as traders or mortgage officers, to take imprudent risks that significantly and adversely affect the firm. With that in mind, the Federal Reserve's guidance and supervisory reviews cover all employees who have the ability to materially affect the risk profile of an organization, either individually, or as part of a group.

This is an earth-shattering development in the annals of government control, yet because the information was released on a Friday, it has received little press attention relative to its importance.

One can understand the bargain made where a company receives federal funds to stay in business. By accepting the funds, which must be repaid, a measure of corporate and shareholder freedom was sacrificed.

But to base government control of salaries on mere regulatory jurisdiction would give the government control over much of the economy, essentially any business involved in interstate commerce. This is the harm which many of us feared from the Trojan horse of the bailouts.

Why not regulate law professor salaries (horrors!)? After all, educational institutions are tax-exempt and thereby receive a de facto federal benefit.

Or doctors? Particularly if Obamacare passes, there will be a federal interest in making sure doctors have the right financial incentives.

Or lawyers? At least those who are admitted to practice in federal courts. There is a federal interest in making sure that the federal resources used to fund the courts are not wasted.

Or truck drivers? They use roads built with federal highway funds (with a touch of stimulus funds thrown in).

Or airline pilots, flight crews and mechanics? Their industry is regulated by the FAA, and the TSA controls security at airports.

And the list could go on and on. But as always, politics will enter into the equation. Do not expect attempts to regulate Hollywood or music industry compensation, or the speaking fees earned by former Presidents and members of Congress.