Last week I turned 73. In all that time (as it seems to me), I cannot recall seeing anything in a newspaper that filled me with as much disgust and outrage as this, which appeared on the front page of Sunday’s New York Times: “After Off Year, Wall Street Pay Is Bouncing Back.”
I brooded on this a good part of the day. The Times piece reported that average (not median, average) pay at Goldman Sachs shaped up at $569,220. Since the political and economic discourse of recent months has fixated on $250,000 as the line of demarcation between well-off and not, I couldn’t help wondering what halving the Goldman average might extrapolate to in terms of people kept on rather than laid off, and other questions of that sort. What might we be talking about? A couple of thousand extra pairs of hands spending money in this city’s economy and elsewhere? Five thousand? You can see how, by Sunday night, I’d managed to get myself pretty worked up.
On Monday morning, my mood wasn’t helped by a squib on Bloomberg.com: “Goldman Sachs Boosts Risk-Taking at Fastest Pace On Wall Street.” Your TARP dollars and mine at work, I reflected. But, of course, Goldman plans to pay back its TARP money, which raises the question: Was TARP (and correlatives) supposed to be a crucial economic initiative, or merely the Wall Street equivalent of a flag of convenience?
I WASN’T THE ONLY ONE bothered by what was reported in Sunday’s Times. Paul Krugman had quite a bit to say in his Monday column. Among other things, he reiterated something that we whose public capital is being shamefully, greedily exploited need to repeat to our mirror a dozen times a day: “I’m not just talking about the $600 billion or so already committed under the TARP. There are also the huge credit lines extended by the Federal Reserve; large-scale lending by Federal Home Loan Banks; the taxpayer-financed payoffs of AIG contracts; the vast expansion of F.D.I.C guarantees; and, more broadly, the implicit backing provided to every financial firm considered too big, or too strategic, to fail.”
In other words, imagine a publicly owned casino whose management has worked it out that every player except the house, every grifter, sharpie, shark imaginable, gets to play with the house’s—that is, the stockholders’, which is to say, our—money.
This stinks. Stinks to high heaven. Stinks all the way from Wall Street to K Street, whence you can be sure significant funds have been routed to Congress to purchase the Capitol Hill equivalent of an S.E.C. “no action” letter. No Action, which begins with “N,” which sort of rhymes with “M”—as in Madoff.
What went down at Madoff Investment Securities is zilch compared to the moral dubiousness of the Great Geithner Giveaway, which is shaping up to be the biggest mulcting of an innocent polity in recorded history. As one keen-penciled observer, Satyajit Das, notes on his blog, TARP, etc., have enabled financial double-dipping of a rapacious effrontery that would have made Jim Fisk redden with envy: “The issuance of government guaranteed bank debt provided underwriters with a ‘double subsidy’—the government guaranteed the debt but then allowed the banks to earn generous fees from underwriting government guaranteed debt.”
Here’s how Bloomberg.com explains the financial “progress” that enables Goldman Sachs to trade on the economic and investment discomfort of millions at a level that permits a pay average of $569,220. I emphasize “trade” because that’s the only game on the Street right now—that and bankruptcy advice. Mergers are very few and very far between, underwritings likewise, and private equity is off in a corner figuring out how to minimize its write-offs. Anyway, here’s Bloomberg.com on Monday: “Wall Street made money in the first quarter from traditionally unprofitable corporate loans and trades for their customers, as the gap between what banks pay to buy fixed-income securities and what they sell them for, the so-called bid-ask spread, almost doubled.”
But that’s really not quite the way it works. “Buy cheap, sell dear” isn’t quite the same as “Borrow cheap, lend dear.” The difference may be subtle, but not when it comes to totting up the zeros on the bottom line. It’s all about allocation and location of risk, about whose ox will get gored. The Bloomberg account speaks of “… traditionally unprofitable corporate loans and trades for their customers …”—and that may once have been the case, but not when Uncle Sam is handing out free money to finance your trading book and allowing you to keep liquidity tight enough to permit a mark-up that a Bensonhurst loan shark would blench at. At that point, the Bloomberg report should speak of “… traditionally profitable loans and trades for its own account.”
I DON’T KNOW what we can do about this. The fix is in. Geithner is the Street’s poodle, that’s clear enough. He can’t really be blamed: It’s all he knows.
I know a bit about that world, too. I worked on and around the Street for a quarter-century. I know what the work used to be about, what it’s about now, what kind of qualities it takes to be successful. Back when I was co-running corporate finance at Lehman, in the early 1970s, I shared in the hiring of some young men who have gone on to eminence and wealth. I made partner at the age of 30, but I can’t say I was a success, because I had no taste for the intellectual and moral coarseness of Wall Street, and if you have no respect for the work you’re doing, sooner or later you won’t be very good at it. That was my story.
At least, back then, more times than not, we thought we were helping the country to move forward by arranging finance for ventures and infrastructure and business combinations. Not that we didn’t chase our share of fool’s gold and follow the dictates of expediency (conglomerates come to mind), but we prospered only as our clients did. Our business was about our clients; if trading for our own account added up to 10 percent of our action, that was high.
But it changed. We started dealing commercial paper in 1966 or thereabouts, purely as a client service. If the paper reposed on our balance sheet more than a matter of hours, that was cause for alarm. But within five years, we discovered we could use our low-rate bank lines to position our clients’ paper and pocket the spread between what we were paying and what we were charging. We had become a bank without a license or a charter. Trouble followed.
As I say, I don’t know what we can do. What Goldman is up to is disgusting. That’s the way it usually has been, and it’s interesting that Morgan Stanley, a firm with a different ethical DNA, trails badly in the league tables. I think what we’re seeing are the consequences of living in a society that has essentially eliminated stigma and disgrace as shaping forces when it comes to institutional and personal behavior—almost wholly with respect to institutional and corporate conduct, and significantly in our private lives. I’d say turn back the clock, but when I look at the long arcs of American history, I’m not sure exactly where I’d turn it back to. Like the poor, the money-changers we have always with us.