When Congress was writing the bailout bill back in September, one of the major sticking points was its insistence on including limits on executive compensation for the banks that were going to be taking taxpayer money. The issue nearly derailed the bill, as Treasury argued that such limits would dissuade banks from participating. But Congress eventually won out.

Or at least it appeared to have. The Washington Post reports today that Treasury succeeded in getting a rather important loophole added in to the bill at the eleventh hour. It said that the pay limits would apply only to banks that participated in the bailout under the original plan in which Treasury would purchase the banks' troubled assets. Since the department quickly switched to a different approach, in which it simply injects equity into banks, the pay limits no longer apply.

"The flimsy executive-compensation restrictions in the original bill are now all but gone," said Sen. Charles Grassley, the ranking Republican on the Senate Finance Committee, told the Post.

Questioned by the Post, Treasury insisted it has "all the remedies available to us for a breach of contract," should banks refuse to abide by the limits.

But legal experts appear to disagree.

David M. Lynn, former chief counsel of the Securities and Exchange Commission's division of corporation finance, said courts have sometimes placed limits on the government's ability to impose penalties if there was no fair warning.

"Treasury might find its hands tied down the road," said Lynn, who is also co-author of "The Executive Compensation Disclosure Treatise and Reporting Guide."

It seems fair to conclude that there is strong internal resistance at Treasury to instituting the pay limits in a serious way. In addition to fighting Congress's efforts to impose them in the first place -- then adding the loophole which the Post highlights, there also some at Treasury who support a voluntary system of compliance, according to a finding of the recently released GAO report on the department's bailout spending, which we highlighted at the time.

And more broadly, Treasury appears uninterested in requiring banks to track what they do with the taxpayer money they're getting. And the House last week passed an amendment to the auto bailout bill that would require banks to say more about what they're doing with the bailout money -- a second bite at the apple after the rush to pass the bailout legislation in September.