I too think all of the bailouts are crap. We have such a dynamic capitalist system that when any of these systems go down, 10 more with more competent and able managers will fight to fill the void. Yes, the credit markets would freeze and the sting would be bad for a brief period but I have no doubt that the recovery would be swift and real.
But if we are going to do this bailout, we need to be as draconian as hell with the conditions so as to make the incompetent executives either jump ship or get their act together so they can repay us. They have to know that the gilded age of a 14 trillion dollar monopoly money, shadow banking system with credit default swaps, CDOs, SIVs, MBSs, etc are over.
If they limit pay, how does a company attract competent people to clean up the mess and take it in new directions? New people aren't going to give their work away for pennies on the dollar...