Wall Street still doesn’t get it:
NYT: “People come here because they want to work hard and get paid a lot for working hard,” one investment banker said Friday as he wended his way, lunch bag in hand, through the World Financial centre. “I think there’s a disconnect between Wall Street and Main Street.”
There’s definitely a disconnect, but it’s not the one the banker thinks.
People in lots of industries “want to work hard”–and many of them actually do. Main Street understands that. Main Street also understands that sometimes, in fat years, when firms do well, it’s reasonable to get paid a lot for working hard. Main Street also understands that, on Wall Street, for the past couple of decades, people have been paid a lot.
But the banker’s big disconnect is the part about “getting paid a lot for working hard.” Wall Street folks don’t get paid a lot because they work hard. They get paid a lot because they work in an industry that has been increasingly and fantastically profitable for going on 20-five years.
Some of that profitability has indeed been due to bankers’ hard work–and the bankers, most people would agree, have been adequately compensated for that. But much of the profit has also been due to the equally-fantastic risks that bankers took with other people’s money. For years, those gambles paid off. In the past year, they haven’t.
Wall Streeters don’t deserve bonuses for “working hard” any more than anyone else does. To suggest that they do is an insult to the tens of millions of other Americans who work hard. (Wall Streeters also arguably didn’t deserve such huge bonuses for years for temporarily gambling successfully with other people’s money, but that’s a different argument.)
The idea of the government capping and regulating Wall Street pay is ludicrous.* But when Wall Streeters justify their still-astronomical bonuses this way, it’s no wonder the rest of the country is screaming for justice.
Several readers quickly asked why having the government cap and regulate Wall Street pay is “ludicrous.” To be clear: I don’t think it’s silly to expect Wall Street to show some restraint. It should. And it isn’t–which illustrates that the current bailouts-for-bonuses plan is a joke.
But we also clearly don’t want elected politicians making detailed operating decisions at private enterprises for long. The screaming over how to structure the bailout shows how quickly this would debilitate our economy. The government shouldn’t run Wall Street. It should just fix the firms and get out.
That’s in part why I think the smart fix here would be to it would be to:
* put the firms into receivership,
* write down the assets, and then
* recapitalize and re-float
The new shareholders can then determine how much Wall Streeters can pay themselves. But they can do it through normal channels, not congressional intervention.