Barack Obama was absolutely right a week ago when he demanded that the compensation of the executives, managers and traders at the failed financial institutions that received bail-out cash be scrutinised by a new “oversight council”. He was right because these are the people who saddled the rest of us with a staggering $2,800bn (€1,990bn, ￡1,690bn) of trading and credit losses, and yet wanted to be paid as if everything was just swell.

But the US president and his advisers were wrong not to impose specific limits on executive compensation, rather than (mostly) just guidelines. They were especially wrong not to enact permanent limits that apply to all regulated financial institutions and all public companies.

The evidence is clear that excessive executive and management compensation lies at the root of all corporate crimes and misbehaviour, of most of corporate America's inattention to creating and preserving high-quality domestic jobs and fair overall employee compensation, and of almost all of the recent massive trading and credit losses. We are now far past the point where extreme disparity in compensation is primarily an ethical embarrassment: it has become a 30-year-old flesh-eating bacterium that is gnawing away at our economy.