Most people would have little difficulty getting by on $200,000 a year. Most people who had badly messed up on their job and put their employer in bankruptcy would be absolutely delighted to find themselves still earning $200,000 a year. That's not the way it works on Wall Street.

When Kenneth Feinberg, Barack Obama's compensation tsar for bailed out companies, issued his edicts last week on executive compensation, it prompted howls of outrage in the financial industry. The New York Times quoted one person who it identified as being "close to the board" at AIG as saying that the pay caps that Feinberg imposed were "insulting".

The specific pay cap in question was a limit of $200,000 on the salaries that could be paid out by the financial products division of AIG. This was...