Really, how can anyone argue with that? It is about as modest and mild a regulatory initiative as it could be, considering the damage that the banks have committed. After all, the Fed is merely telling the banks to do something that you’d think that the banks would want to do themselves without anybody telling them. The very fact that the Fed has to actually broach the subject in the first place is a sad commentary on the banking industry.

Constructive and nonpunitive as the Fed guidance surely is, the banks and free-market advocates don’t like it. Anything that smacks of government control of pay is just no good at all, they argue. The Heritage Foundation, for instance, believes that, left to their own devices, banks will behave properly: “A sense of risk—instead of the certainty of taxpayer bailouts—is precisely what would rein in some of the reckless corporate practices rightly decried by the government and American citizens.”

The securities industry hasn’t taken a position on the Fed regulations just yet. But in a position paper issued in June, the Securities Industry and Financial Markets Association argued that regulations should emphasize each firm’s board of directors’ “central responsibility”—which ignores, of course, that out-to-lunch corporate governance got us into this mess in the first place.

The long, sorry history of reckless risk taking by the financial industry belies the free-market line. There are numerous instances in which the smartest people on Wall Street behaved with a single-minded thirst for profits, without any thought as to the consequences. Long-Term Capital Management is an excellent example. It was formed in the mid-1990s by sharp traders from Salomon Brothers such as John Meriwether, and its ranks included some of the brightest people on Wall Street. Yet LTCM took such unwise, risky, leveraged positions in the global markets that it was upended by the Russian financial crisis of 1998. A Federal Reserve-organized bailout was required to prevent LTCM from bringing down the entire financial system.

LTCM’s principals were hedge fund traders and not bankers, but that’s a minor distinction. Their motive was the same: a hunger to become multimillionaires by taking excessive risks. This same story repeated itself again and again during the financial crisis, and this time the systemic issue didn’t turn out to be a blip, as LTCM was. All of us suffered as a result. Yet, the opponents of sensible regulation are continuing to peddle the line that government has no stake in curbing how bankers and traders make money.

Ronald Reagan used to say that it was necessary to get “government off our backs.” Off it went, and we’ve seen what happens. Time to put the government back on their backs—and keep them there—at least when it comes to the paychecks that fueled the financial crisis.