11/20/2008 05:12 am ET Updated May 25, 2011

Redistribution: From Joe the Plumber to Robert Rubin

Okay, as we all know now that almost everything about Joe the Plumber is a lie. He doesn't own a plumbing business and apparently is not even licensed as a plumber, but he does raise a legitimate concern about "spreading the wealth around." The only problem is that in this country, when the government spreads the wealth around it usually means redistributing it upward.

That is certainly the case with the hundreds of billions of dollars being used to bail out the banks. The public has a real interest in keeping the banking system functioning. It has zero interest in subsidized the pay checks of wealthy bank executives or enriching the bank's shareholders, which Secretary Paulson is now doing.

There is no question about what is going on here. The public is providing massive subsidies to the country's major banks. The terms of the bailout were far more generous than what the banks could get from the private market. As a result, banks that might not have survived otherwise, or at least would have been forced to make serious cutbacks, can now keep operating as they had been.

This means that their high level executives will continue to draw salaries in the millions or tens of millions of dollars. It also means that the shareholders will continue to receive dividends.

This was not inevitable. Paulson could have imposed serious pay caps on executive compensation. In Germany, the banks that are getting government money can't pay their executives more than 500,000 euros, about $680,000. The United Kingdom also limited executive compensation as part of its bailout.

In addition, the banks in the UK are prohibited from paying dividends as long as they have public capital. This makes sense not only as a punitive measure, but it will also help them to build up the capital they need to stay in business.

It has sometimes been argued that the healthy banks would not take part in a bailout under such conditions. Let's see.

Suppose we apply the compensation limits/no dividend bailout rules, and then give everyone the option to opt in or out. Those taking the opt-out route will not benefit from the government's extension of deposit insurance nor will they be able to count on access to the Fed's discount window. My bet is that no banks go this route, but if any do, there will be plenty of investors happy to short their stock, assuming the government allows it.

But, Paulson went the bank welfare route. Joe the Plumber and everyone else should be very upset about this method spreading around the wealth. The top executives at the big banks will be getting the equivalent of several thousand years of TANF checks for a mother with two kids. And, unlike the mother receiving a TANF check, the bank honchos inflicted serious damage on the economy.

The big question is, which candidate is opposed to this sort of spreading around the wealth?