The evidence continues to roll in. Scanning theheadlines will produce at least an item a week, but if you dig deeperyou can find relevant items on a daily basis, too. The most recent bigitem is the one told of the senior executive in Citibank who isdemanding a bonus of $100 million this year, due to him under contract- so he says. Not long before that was the item about Goldman Sachsintending to pay out billions of dollars in bonuses to its employees.And before that, of course, was the story about AIG wanting to makelarge bonus payments.
Forthose who are unaware, AIG has been the recipient, to date, of at least$85 billion of government aid that taxpayers money. Citibank hasreceived tens of billions of dollars of direct support from the USgovernment, as well as hundreds of billions worth of guarantees.Goldman was hurriedly converted to a bankholding company last year, toprevent it suffering the fate of its erstwhile competitors, LehmanBrothers and Bear Stearns, while it too has benefited mightily from theslew of government intervention schemes introduced for exactly thatpurpose, namely to prevent the Goldmans, the Citicorps and the AIGs,from collapsing under the weight of their own failed bets and bringingdown the entire financial system and the economy.
Among those who are aware - fully and painfully aware - of theforegoing are all the senior people in these institutions who willeither authorise, or receive, or both, the bonus bonanza. It istherefore obvious that these kinds of news items a) reflect anextraordinary level of chutzpa on the part of the specific people, thespecific institutions and, more generally, among the financial servicessector generally; b) are triggering growing outrage among the generalpublic. It is fed back into the political system and surfaces in talkof a clash between 'Wall Street' - i.e. the financial services sectorand its ancillary sectors (lawyers, accountants, software and mediafirms) - and 'Main Street', meaning everyone else. Less obvious, butnevertheless true, is that the only explanation for the behaviour ofthe people and companies that make up the financial services sector,given what happened to them, their companies and the world as wholelast year, and in the face of the fury building up among the generalpublic, is that they are still cocooned in a state of total disconnectbetween them and the rest of the world. Essentially, they continue toexist in a dream world, as if the events and developments in theirbusinesses during July 2007 - March 2009 didn't happen, or don'tmatter, because they have left no legacy.
How can this fantasy-world survive? One possibility is thatWall Street does indeed 'own' Washington. This idea used to be theprovince of conspiracy theorists, but it can no longer be so easilydismissed - if only because this is the explanation that best fits theincredible facts of the period under discussion. An alternativepossibility is that these people genuinely believe that they are worththe obscene salaries and bonuses they draw, because of their supposedcontributions to their employers' profits. Unfortunately for them, thisnonsense has been exploded by the crash, so that even the average Joe,who has not read Nassim Taleb or Michael Lewis, now knows that banks'trading desks employ smart, arrogant kids to play with 'Other People'sMoney' and make outrageous bets in various financial markets. In thesick, fundamentally immoral world these traders inhabit, when theirbets prove good, they are due a large chunk of the profits as a rewardfor applying their special talents. When the bets fail and the tradersand their desks "blow up", they get fired and take themselves and theirintact bonuses to another employer, while the losses are absorbed bythe banks' shareholders (or, in the case of hedge funds, the investors)and, if the institution involved is sufficiently large (as in"systemically important") the taxpayer is obliged to cough up to coverthe losses.
Meanwhile, the rage building up on Main Streetagainst Wall Street is real and growing. When the current speculativeboom fades and the slump returns, the financial sector will be forcedto face the fact that the world in which they were the top dogs hasgone for ever. As a result, the way people regard them has switchedfrom being a source of envy to being the focal point of simmeringhatred. If they do run to Washington, there will be a revolution; ifthey don't, their political allies will ditch them. Either way, theirdays are numbered. From an economic point of view, that's absolutelyfine, because the number they generate is, over the long term, largeand growing, with a minus sign in front.