Yes, bankers have historically gotten paid too much, and the troubled Wall Street firms at the center of this credit crisis shouldn't have handed out generous bonuses as the ship was going down.

But no, President Obama's plan to cap executive pay at $500,000 for banks that take federal money is not a good idea.

For starters, it will create a disincentive for executives at troubled banks to use the federal program that was established for the very purpose of preventing the U.S. banking system from collapsing.

Secondly, it will drive some smart executives out of the banks that need them desperately right now. And replacing them won't be easy, dangling a $500,000 carrot in front of potential candidates who likely surpassed that grade level more than a decade ago.

Oppenheimer's Meredith Whitney said it tactfully: "You’re going to get a different variety of folks who are going to come in." Translated, with less diplomacy, that means Wall Street is going to be run by executives with subpar experience and drive.

Money, Whitney notes, is what motivates people to come to Wall Street. It's not a public service job, nor should it pay like one.

But perhaps most important, Obama's compensation plan is a great example of misplaced power. The Treasury Department shouldn't be wasting its time and effort on policing the payroll departments at the banks it now partially owns.

If the administration really wants to insert government into the troubled private sector, it should just go whole-hog and nationalize the banks that are teetering on the edge of the abyss.  

Unfortunately, Obama and Treasury Secretary Tim Geithner have gotten swept up in the public relations tantrum that erupted after the disclosure of bonuses, and it's distracting them from fixing the real problems.

It's like the outrage over the auto executives taking private jets to their congressional hearings in Washington late last year. The cost of the ride was less than what the companies lose in just one minute of one day, as former White House economic adviser Lawrence Lindsey pointed out to Jon Stewart earlier this week on the Daily Show.  And yet it seemed to be all any of the legislators could think about.

President Obama should be above the noise. Unfortunately, today's announcement suggests it's all he can hear.