So much for the meritocracy myth on Wall Street.

According to a study released by the Institute for Policy Studiesthis week, the top five executives at the 20 banks receiving the largest amount of federal bailout dollars took home an average of almost $13.8 million in personal compensation last year – or 37% more than the average leader of an S&P 500 company. This most recent revelation underscores that rewards on Wall Street are completely disconnected from job performance.

How private businesses choose to compensate their leaders should be an internal matter – except for the fact that during the same year these corporate leaders were raking in these profits, taxpayers backstopped their firms from total collapse. In a true free market system, the market rewards good decisions and punishes bad ones. In the system under which we live, banks and even large hedge funds know that the Federal Reserve or the Treasury Department will negotiate bailouts because of the systemic risk posed by collapse.

It is incomprehensible that this kind of behavior does not outrage the so-called free marketers in Congress. Yet the Republican minority appears to be so ideologically myopic that its members keep going back to talking points that have little to do with reality. Several months ago, Rep. Tom Price (R-Georgia) exhibited this stunted groupthinkwhen he lambasted a bill to give shareholders greater say over executive compensation as cutting “at the very core of our free market system.”

What free market system is he talking about?

Bank executives who gamble with shareholder funds, pay themselves outrageous bonuses even as their shareholders are all but wiped out, and know that taxpayers will eventually backstop their folly because they are deemed too big to fail do not operate in a real free market system. Does anyone for one minute imagine that Bank of America and JP Morgan Chase operate in an environment that would allow them to fall now that both banks have become even more crucial to the financial industry with their respective acquisitions of Merrill Lynch and Bear Stearns?

The lesson of the past year is that taxpayers will continue to act as a backstop to preserve the integrity of the same free market system that currently exists only in the imagination of certain politicians. Remember, this phenomenon was undertaken initially by President Bush and implemented by his Republican treasury secretary (who previously served as chairman of Goldman Sachs) and his Federal Reserve chairman (who previously served as the chairman of Bush’s Council of Economic Advisers). These are hardly the wild-eye liberals whom politicians on the right love to accuse of eradicating capitalism.

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If politicians like Rep. Price and others sincerely want a free market system, the first thing they need to do is agree that the current system, which allows a few large banks to play an outsized role, cannot continue to operate as it has. Banks too big to fail cannot provide immediate rewards to the same leaders who take reckless gambles in order to make a quick buck – knowing that their gambles are backed by the full faith and credit of the United States. In order to achieve a true meritocracy, a regulator needs to step in to oversee financial entities whose sheer size allows them to take risks at government expense.

Once a private entity knows it cannot rely on taxpayer backing because it poses no systemic risk to the taxpayers, it can fully engage in any kind of lawful behavior its executives and shareholders deem appropriate. Supporters of greater regulation do not want government inserting itself into the daily workings of private business. They want to end behavior that pays off the overcompensated gamblers at the top while leaving taxpayers on the hook for their mistakes.

If ideologues on the right truly wanted reality to match their free market rhetoric, they would permit regulation that would no longer necessitate taxpayer backstops. Until then, they can call the system under which we have lived for a very long time whatever they want – but to call it a free market meritocracy would be a misnomer.

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Julie Roginsky is a CNBC contributor who has extensive experience in government, politics and public relations on both the federal and state levels including serving as the Washington communications director for former Senator Jon Corzine.