Some things have changed in the banking industry and some haven't. In the fall of 2008 Wall Street was on the brink of financial disaster, and only extraordinary federal intervention, including a $700 billion bank bailout fund, spared the industry from ruin.
Fast-forward to the present, where many financial giants are set to post big profits thanks to a market rebound - and the largesse of U.S. taxpayers. But old habits die hard: Wall Street is set to award some of the biggest bonuses in history.
Enough is enough. Wall Street had its chance to voluntarily cut back on its compensatory excesses, and that's clearly not happening. Perhaps such an approach was never going to work anyway. If, as the bankers claim, competition requires them to reward their top producers lavishly or risk losing them, then neither CEOs nor shareholders have the necessary motivation to reform. It's up to the government to set some reasonable limits on an evenhanded, industrywide basis.
President Barack Obama is expected today to propose a new fee on big financial firms to recover $120 billion of Troubled Asset Relief Program bailout money. Given banking's profit picture and the federal government's $1.4 trillion deficit, that's entirely reasonable - although the proposal's merits depend greatly on details that might not be available for weeks yet.
It's also entirely appropriate for the Federal Deposit Insurance Corporation to consider the risk posed by compensation plans when deciding how much banks should pay into the deposit-insurance fund. That change in policy was advanced by the agency this week in the belief that it is the FDIC's responsibility to assess risk of all types. Pay plans that reward short-term profits at the expense of long-term financial stability ought to be of concern to any insurer not asleep at the switch.
No doubt the bankers and their well-paid lobbyists will howl, but the industry's reckless behavior plunged this country into the deepest economic challenge since the Great Depression. The federal bailout was a game-changer - government intervention must cut both ways.
Americans are rightly outraged at the news that firms like Goldman Sachs are handing out billions in bonus checks while the rest of the country is struggling with unemployment and real estate foreclosures. The anger is so great that there's a real danger Congress will over-react and come up with a populist solution that's potentially damaging to the economy.
Far better to take a measured approach that will cut down on eight-figure bonuses but not make it more difficult for Main Street businesses to secure a loan. Bankers will never be paid like teachers or police officers, but there's no reason for their salaries to be stratospheric either.
During yesterday's opening hearing of the Financial Crisis Inquiry Commission in Washington, a panel of Wall Street CEOs continued to defend their bonus practices. They are just fortunate they don't live in Great Britain, where the government has already imposed a new windfall tax on bank bonuses. Scratch London from the list of places where unhappy U.S. bankers might flee.
Far better to devise a long-term U.S. policy that would prevent taxpayers from ever again being played like chumps by Wall Street fat cats. That will require not only setting some limits on pay but on ensuring some limits on risk and on the size of "too big to fail" institutions, something that putting a squeeze on profits might just accomplish.
Readers respond Here's an idea: Let's make taxpayer money last in and first out with any bailout plan. That way TARP is restored to the last dollar before the first dollar is spent on yachts and second homes.
Voice of reason
Fat cat bankers can't change their stripes. What harm is there in taxing the kittens out of their bonuses?
Streetcleaner
You mention Goldman Sachs. How many ex-Goldman Sachs executives are in the Obama White House?
Goldman Sachs OWNS Obama and company! OWNS them! Not the "hope and change" millions voted for, is it?
Voters' Ignorance