The Obama administration has finally crossed the executive-pay Rubicon and declared war on Wall Street. A few months ago, President Barack Obama sent mixed signals, initially blasting groups such as AIG that were receiving government aid for paying large bonuses, and later pointing out the need for productive people at these companies to be paid competitive salaries and bonuses, since they could leave for brighter pastures. This, he argued, would not be in the interest of the assisted institutions, the economy or the companies' stockholders (including US taxpayers).

As Robert Lucas, a Nobel Laureate, once famously informed his dean at the University of Chicago: “You don't get to decide my salary, you only get to decide who pays my salary.”

But now the administration has taken a different tack. Mr Obama will cut compensation for the highest-paid 25 employees in the seven companies still receiving government aid (AIG, Bank of America, Citigroup, Chrysler, Chrysler Financial, General Motors, and GMAC) by about 50 per cent and cut cash compensation by 90 per cent.