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Wall Street Crisis: Blame The Salaries?

In the funny business of bailing out Wall Street, Peter Morici--a professor of international business at the University of Maryland--insists one of the biggest problems in the current situation is the one thing he claims no one on CNBC wants to talk about: Wall Street salaries.

He says Treasury Secretary Hank Paulson's $700 billion plan "only puts off the disaster, because it is not requiring institutions to reform compensation structures which gave rise to the sale of high-risk securities." Morici's theory is that when you pay a 35-year-old $10 million on Wall Street--so that the CEO can justify a $200 million salary--these people feel pressure to do something much riskier than sell good ol' "plain vanilla" securitized debt instruments. He refers to Wall Street CEO's as a "cartel" who have engaged, in essence, in salary "price fixing." He believes that has to change.

I pointed out that slashing salaries on Wall Street will only send the best and brightest elsewhere. He disagrees, saying no one else pays the salaries we see on Wall Street. I asked him when the government has ever placed a salary cap on any private enterprise, ever. He didn't know of any instance, but said the government can require certain overall financial performance and profitability if it's extending a $700 billion helping hand. That's not the same thing, I said. His reply, "Just because it's never been done before doesn't mean it shouldn't be done."

WALL STREET IN CRISIS - A CNBC SPECIAL REPORT
WALL STREET IN CRISIS - A CNBC SPECIAL REPORT

Morici insists, "You can never pay these kinds of salaries and have viable institutions. It's like paying auto workers $300 an hour, then wondering why they can't make cars, and then expecting the government to bail them out. Sound familiar?"

Except if GMfails, Morici says, we can always buy a Toyota. It's not quite the same with our financial system. Still, the government legislating the salaries of a private enterprise doesn't sound American. But then, are these firms actually turning into government businesses? I wonder what the current top pay for a government employee at GS-15 is these days.

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SEEING THE BAILOUT IN THE BOTTOM OF A STARBUCKS CUP
A friend was pondering the $700 billion bailout package. $700 billion is too big a number to get his head around, so he decided to measure it in something he understands: cups of Starbucks. He measured it in Tall cups of Starbucks joe (also known as "small"), "since the days of Venti on Wall Street seem to be over and Grande, for now, is on hold." The Tall Coffee of the Day is $1.68 in the town where he lives. A Tall Latte is $2.87. He decided to leave out the tax--which is, ironically, something Washington would never do.

TOTAL COST OF THE BAILOUT AS MEASURED IN COFFEE OF THE DAY: 416,666,666,667 cups to bail out the financial system.

TOTAL COST OF THE BAILOUT AS MEASURED IN TALL LATTES: 243,902,439,024 cups.

LIGHTING A CANDLE FOR WAMU
WallStreetFighter.com sent me the photo of the candle it lit in a vigil in support of Washington Mutual.

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