Noted bond blogger Accrued Interest has penned an analysis where he says that, “Having the Govt. Mandate Pay Packages is a Stomach Churning Concept.”

While I agree that the idea of the government determining pay rates in a private industry is worrisome, there are a couple of important things to note:

• It ain’t a private industry, it’s owned by the government. With the amount of money that the taxpayer has shoveled into the banking system, both through direct payments, Federal Reserve facilities, and the bailout of AIG, these institutions are as free market as the Tennessee Valley Authority.
• How could the government do any worse than the banks?

Yes, there is that first sphincter tightening moment when you read the lede, but then you realize that the alternative is handing those chimpanzees in the banking industry an M-2 .50 caliber machine gun and a couple of belts of ammunition.

BTW, I would note that having a government office mandade pay is not my preferred solution.

My preferred solution would be through the tax code, because the government collects taxes pretty well, just ask Al Capone, along with some changes in shareholder rights laws:

• Higher marginal tax rate, which makes the mega payouts less valuable
• I’d like this additional money to go to an insurance fund to cover future bubbles, but if someone believes that this would happen, they have the political acumen of Little Orphan Annie.
• Eliminate the deductiblity of wages above those of the President, plus an equal bonus
• This also has the effect of taxing overpaying for prima donna athletes, which is a plus in my book
• It is currently illegal for shareholders to hold binding votes on executive remuneration. Make it legal for shareholders to do so if they choose. I’d use the above Presidential wage line as a limit, since having shareholders voting on the salary of Willie the mail boy is nuts.
• Note that I am not requiring requiring a binding shareholder vote, just allowing it.
• I would also add a Tobin Tax on financial transactions on the order of ¼% on all financial transactions, which would serve to damp down some of the more destructive speculation and the massive front-running masquerading as “high frequency trading”.
• I’d like to see this go to the above mentioned insurance fund, but the Little Orphan Annie comment still applies.

Note that, except for eliminating a specific prohibition on shareholder’s rights, these are all tax changes, and their administration, though not the politics of their being enacted, are simple and straightforward.