Certainly the government is right to force those who take taxpayer funds to manage expenses, beginning with salaries, and especially when the people asking for those funds were involved in the decay of the businesses in question. But let's not fool ourselves; when you cap income in financial services, you run the risk of losing talent. Annoy an autoworker and make the work conditions less than ideal, and he will not pack up his metal lunchbox, load up the Ram Tough pickup, and start building autos on his own with a few buddies.
But limit the potential of certain financial workers and they can pack up their gear and start their own firms (when and if they are not picked up by a competitor who can recognize talent). The fit survive in an industry with low barriers to entry.
A couple of traders from J.P. Morgan and Goldman, Sachs demonstrate part of that point.
Foster Smith, former head of power and natural gas trading at JPMorgan Chase in New York, is teaming up with Scott Mackle, a former Goldman Sachs power trader, to open a hedge fund, the energy trading news Web site SparkSpread reports.(N.Y. Times)
Mr. Smith and Mr. Mackle have set up a management company based in Darien, Conn., FSM Capital, for the unnamed fund.
This does not mean you continue to give the comfortable compensation (to execs at Fed subsidized banks) under the premise that talent can be lost, but it serves as a reminder that, in fact, talent can and will be lost, and that money businesses are unique. One ought not to assume that executives or employees (investment bankers, traders) might be humbled and headed for a new world of low compensation. Reality and history suggest otherwise, as money tends to adopt to the rules and laws that exist, with those at the top still seeking or manufacturing high rewards.
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