Obama administration to impose salary restrictions.

Bailing out companies with taxpayer moneys was and still is a double edged sword, precisely the reason that doing so was catastrophic in every sense of the word.  In this story, we learned that certain companies are very likely to be on the receiving end of significant restrictions in compensation. 

    The seven companies are: Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial.Total compensation for the top executives at the seven firms will decline, on average, by about 50 percent, according to the person familiar with the administration's decision.

Great.  So now we have a damned if you do, damned if you don't situation.  These corporations owe us quite a bit of money, hundreds of billions that could be used to stymie our deficit.  Their ability to pay back the money largely depends on a notion that our country will magically recover, an impossible event without a significant amount of debt defaulting.  There is credible information, according to Monday's reverse repo by the Fed suggests banks are insolvent so the money is gone, somewhere.  As far as the car companies, even scarier situation because they cannot recover even in their wildest dreams.  They are producing cars that Americans cannot buy (or want) because after years of free money and euphoric buying frenzies the American consumer is tapped out.  GM and Chrysler has to downsize and rapidly, which essentially means that the tens of billions we gave them *might* only come back to us after a massive shrinking, recovery and expansion and that will take many years.  Precisely the reason why cash for clunkers was an economic disaster, the stupidest thing that could have been done.

Now that the government is in possession of a bunch of bankrupt banks, they need to monitor their profits because currently we are on the hook for all the losses.  We are very aware of the financial industry's profits as of late and the fat bonuses they are getting.  This is our money and the US government has every right to reach in and take it.  Except that doing so will seal the deal on the question of nationalization, a hard to pill to swallow.  However as soon as compensation caps are implemented this in effect will institute price controls and that in turn will create shortages, shortages of capable people (if any are left).  The big banks could be driven into the ground and will disappear which ironically is precisely what should have happened in the first place!  Yet as history demonstrates, government officials have a hard time figuring out when to bury low quality assets and will continue hanging on to these zombie corporations for an extended period of time, thus preventing them from disappearing.  In turn this will greatly prohibit high quality competitors from entering the market because as we all know, fighting against a government monopoly is a fool's errand.

There is obviously another matter to be discussed. Who pressured who?  Some in Congress suggested that banks pleaded for money, others like Paulson suggested that bank failures will send our country into a death spiral.  We heard rumors that some banks were pressured into taking TARP money and others just took it for competitive advantage.  Either way, the line between the federal government and corporations have blurred to a point where we have no idea what caused what. 
In conclusion, we are in really bad shape.