It’s easy to dump on the big banks for their outlandish compensation. The reason it’s so easy is because it’s the right thing to do.

Last week, waves of indignation followed a report that three of the biggest Wall Street banks, Goldman Sachs, Morgan Stanley, and JPMorgan Chase, were planning to hand out just under $30 billion in bonuses. That’s $250,400 per employee, almost five times the median household income in the United States last year, according to Bloomberg.

Memories are short, aren’t they? It seems like only yesterday that Hank Paulson pleaded on his knees—literally—for Congress to pour billions of taxpayer dollars into these and other greedy, overpaid financial institutions. It’s a small wonder that increasing numbers of ordinary Americans, who were unhappy about the bank bailout in the first place, are feeling like suckers. And they don’t know the half of it.

Bank-compensation policies are more than just unconscionable. They encouraged the risk taking that got us into this mess in the first place.

Think about it. Why did bank executives behave as they did? Why did traders take risks that put their firms and the entire economy at risk? Compensation was the great nudge toward Apocalypse at firm after firm, ranging from Merrill Lynch—whose traders were compensated on the basis of shortsighted trading strategies that ultimately proved disastrous—to a score of commercial banks and mortgage lenders foisting subprime loans on the public.

To a largest extent, the Street’s compensation practices can be traced back to the influence of that other source of systemic risk, hedge funds. Beginning in the 1990s, hedge fund managers were among the first investment professionals to rake in compensation that was ordinarily in the millions and, sometimes, crept into the nine figures. This led to a kind of culture of humungous pay, and curbing it has been a major challenge for the Obama administration.

Kenneth Feinberg, the government’s pay czar, has been making highly publicized public moves aimed at putting executive comp on a saner footing, such as by setting pay limits at TARP recipients, and asking that Bank of America CEO Kenneth Lewis receive no pay. On October 22, the Fed issued a “guidance” for Fed member banks on “sound incentive compensation policies.” It was something a bit short of a regulation, but it requires banks to review their incentive-pay programs to ensure that they’re not engaged in excessive risk taking. It certainly sounds reasonable enough: “The Federal Reserve expects all banking organizations to evaluate their incentive-compensation arrangements and related risk-management, control, and corporate-governance processes and immediately address deficiencies in these arrangements or processes that are inconsistent with safety and soundness.” At the same time, the Fed will be reviewing compensation policies at the biggest banks.