Wall Street compensation is legendary. Nowhere on earth can one borrow so much to profit so excessively for creating so little. A few exceedingly wealthy and powerful men come from one spawning ground, Goldman Sachs. Their hands should be slapped first. Topping the list is Treasury Secretary Paulson, former CEO of Goldman Sachs. Paulson has overshadowed the Federal Reserve, becoming the arbiter of who lives and dies on Wall Street. To date, two of Goldman Sachs’s major competitors, Bear Stearns and Lehman Brothers, are dead. A third, Merrill Lynch, was handed to commercial banking giant Bank of America, which saved its stock from free fall. Meanwhile, if he succeeds, Paulson will have maneuvered the greatest transfer of risk ever from Wall Street to Washington, at a tally of $1.2 trillion or more.

Then there’s John Thain, co-president of Goldman Sachs under Paulson. Thain left Goldman to run the New York Stock Exchange before taking the helm of Merrill Lynch in December for a package that included $15 million in cash. There, Thain hired another Goldmanite, Thomas Montag, for a total compensation package of $90 million (including a sign-on bonus of $39.4 million). Soon to be one of the greatest Wall Street titans of all, current Goldman CEO Lloyd Blankfein bagged $53.4 million in 2006, making him one of the highest-paid executives on Wall Street. In 2007 he made $67.9 million, including $26.8 million in cash.

The refrain on Wall Street is that it takes big bucks to attract and retain “top talent.” CEOs moan that if their stock takes a hit, so does their net wealth, but there’s always more left to soften the blow. After Bear Stearns’s demise, former chair Jimmy Cayne still received, for holdings once worth $1 billion, a cool $61.3 million.

Democrats in Congress are seeking to tie Paulson’s bailout package to checks on excessive Wall Street executive compensation. Of course, reining in outrageous pay packages is a top priority, particularly during this period of lightning-quick decisions to bail out Wall Street because of its self-induced losses. But a more effective response than direct caps on compensation would be tying compensation to risk levels. A risk-related compensation cap could link the maximum annual cash compensation to the level of risk the firm takes on relative to the capital reserves it has to back that risk. This would be a way of imposing a check on Wall Street pay while helping to stabilize the unregulated and systemic risk that permeates our financial system.

Compensation certainly fuels Wall Street’s greed, but it’s not just individual speculation at the top that needs controlling; it’s the speculation throughout the entire system. Rather than allowing the creation of larger and riskier entities, like Bank of America-Merrill Lynch–or the newly converted bank holding companies Goldman Sachs and Morgan Stanley–we need a reclassification of Wall Street along the lines of the Glass-Steagall Act. Instead of the monsters being created, we should promote smaller, more heavily regulated financial institutions that pose less risk not just to investors but to taxpayers.

OTHER CONTRIBUTIONS TO THE FORUM

Doug Henwood William Greider Ralph Nader Thea M. Lee Robert Pollin Thomas Ferguson and Robert Johnson James K. Galbraith and William K. Black The Rev. Jesse Jackson