This is the Cato Daily Podcast for Tuesday, October 27th, 2009.

I'm Caleb Brown.

Hazar Kenneth Feinberg has cut the salaries of dozens of top executives at bailed out banks, but is compensation really the problem?

After all, the Fed has had authority to adjust compensation at financial institutions for some

time, but shows not to use it.

Mark Calabria, Director of Financial

Regulation Studies at the Cato Institute, comments. Mr. Feinberg's job exists

because Congress has mandated to the administration and the bank bailouts and subsequently

has amended this in the first stimulus that there be pay restrictions and

that quote-unquote excessive compensation be restricted in terms of recipients

that receive quote unquote extraordinary assistance.

Now the administration has sadly so much in the TARP area has huge amount of flexibility

to interpret any of that how they choose. Congress really did just say you need to do

something about this to these people without actually defining either of those terms.

So at the nudge of Congress the reaction of the administration was to, you know, surprisingly, let's come up with a czar to do this.

Let's assign somebody who can go out there and find a way to make sure that compensation isn't overly excessive and isn't encouraging of risk.

So the authority of it really comes from the statutory provisions of the bank bailout.

And what he has done is propose two sets of things. One directly goes to the compensation of the seven

largest, seven firms that he is determined have received extraordinary assistance. And these are the banks and the auto companies and

AIG.

Ian what he has said is we're going to make sure that your cash compensation is not overly excessive.

And so one, there's a shift from the composition of compensation

...