Don't get me wrong. The Obama administration's "pay czar," Kenneth Feinberg, is right to put a lid on compensation at the Not-So-Magnificent Seven: Citigroup, Bank of America, General Motors, Chrysler, GMAC, Chrysler Financial, and the unforgettable AIG. Twenty-five of the biggest earners at each of those firms will have their overall pay cut roughly in half, and most of that compensation will come as restricted company stock, not cash. This means that what they ultimately reap, when they are eventually allowed to sell the stock, will depend on how well the company performs -- which will depend on how well the executives do their jobs.

    Tying pay to performance: What a concept.

    Feinberg even muscled outgoing Bank of America CEO Kenneth Lewis into accepting no pay or bonus for his work this year. But Lewis will still have an estimated $70 million retirement package to keep him warm at night, so hold your tears.

    It's nice to know that there must be some pooh-bah at B of A, Citigroup or AIG who will have to live without the new $90,000 Porsche Panamera he was planning to buy. But Feinberg's writ of imperial decree doesn't extend beyond those seven companies, and the rest of Wall Street gives no indication of remotely understanding what the big deal is about compensation. Goldman Sachs, for example, has a bonus pool this year of at least $16 billion and perhaps as much as $23 billion.

    But all this is just a sideshow. The main event is the limited, far-too-modest attempt by the Obama administration and Congress to curb the irresponsible Wall Street practices that led to the financial meltdown -- and, if unaddressed, will lead inexorably to the next crisis.

    Deregulation allowed the Wall Street financial marketplace to evolve from an institution that served the overall economy -- by allocating capital most efficiently to the companies that could put it to best use -- into an institution whose primary mission was to serve itself.

    The vast over-the-counter trade in instruments known as derivatives, nominally worth a staggering $500 trillion worldwide, is largely an exercise in make-believe. Firms make highly leveraged investments in exotic securities whose true value is opaque. Then they hedge these investments by buying insurance against potential losses, although the insurer doesn't have a fraction of the money it would need to make good on all its promises.

    All this investing and hedging generate huge transaction fees and big profits, which can be skimmed off the top each year. Everything's fine, until there's some disruption in the real economy -- a downturn in the housing market, say. If the disruption is severe enough, the whole web of make-believe deals starts to unravel. At which point the government steps in and bails everybody out.

    The White House and Treasury have proposed reforms that would ameliorate, but not eliminate, this ridiculous cycle. What the administration won't do is outlaw some kinds of derivative products or transactions; officials say that if they went down that road, they would always be one step behind Wall Street's inventiveness and greed. I think it would be worth a try.

    The administration did propose that derivatives transactions go through clearinghouses and be conducted on transparent, regulated exchanges. But as reform legislation begins to work its way through Congress, Wall Street firms -- including companies that received bailout funds -- have boosted their spending on lobbying and political donations.

    As a result, legislation approved Wednesday by the House Agriculture Committee -- which has jurisdiction over the futures markets -- would exempt up to 30 percent of derivatives transactions from new regulations. A bill approved Thursday by the House Financial Services Committee that would create a new Consumer Financial Protection Agency, strongly opposed by most luminaries on Wall Street, was amended in the committee to exclude mortgage insurers, title insurers, accountants, lawyers and others.

    Banks, meanwhile, are jacking up overdraft charges and instituting new kinds of credit card fees before any new limits kick in. Hey, get it while you can.

    Capping salaries and bonuses is fine. But we need to pay attention to the guys in ski masks with bulging bags of money slung over their shoulders. They're about to jump into the getaway car.

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    Eugene Robinson's e-mail address is eugenerobinson(at)washpost.com.

    (c) 2009, Washington Post Writers Group