Banking Reform: The Work Begins?

This week brings the beginning of the Financial Crisis Enquiry Commission’s public hearings. This body was set up early last year to investigate the origins and consequences of the bank implosion that brought our economy to its knees. The Commission’s chairman is Phil Angelides a former treasurer of California. He promises a thorough and illuminating investigation.

The public hearings that begin this week could not be happening at a more ironic moment: almost at the same time wall Street is entering its annual bonus bonanza and the amount of money being splashed around is rumored to be breathtakingly large. The average set aside at Goldman Sachs is said to be in excess of $560,000 per person.

While I realize that Wall Street has to pay its employees competitively, the sums being mentioned are ludicrous, egregious, and insulting all at once. They obviously don’t get it. Which is why I want to wish Angelides good luck. Someone has to rip Wall Street apart. I hope his commission is a beginning.

To argue, as Wall Streeters do, that they have reformed because they are now giving more of the bonus pool away as stock rather than cash simply aggravates the problem further. Nor is it good enough for them to say bonuses are now better tied to long term profits. Both these moves are improvements, but they are way too late and way too little. Bonuses should always tie performance with reward. That’s the very essence of a bonus. The anti-social, and darn nearly fatal to our economy, activities that Wall Street indulged in over the past decade were aided and abetted by bonus payments that made no true attempt to tie performance with reward. The measurements of performance were shallow and short term. The metrics were easily distorted in the employee’s favor, and too easily pumped up with scant regard for the longer term impact on shareholders or society at large.

All that activity may not have been illegal, but it defines unethical, and describes anti-social to perfection.

The banks robbed us blind.

Too much has been written about the games that the banks play in order to tilt the game in their favor, so I need not elaborate on those schemes here. All I need add is that all our major banks have lost, for all time, any shred of respectability. They deserve, indeed they worked hard to earn, the title of latter day robber barons.

That they are able to contemplate paying out seven or eight figure bonuses even as our economy tries to stutter back from the damage and carnage their actions wrought boggles the mind. They are not only clueless, but very obviously they inhabit a different universe. Not one or their executive leadership – if that is not an oxymoron – not a single one, deserves to be taken seriously as a balanced or healthy member of society.

To their claim that they are ‘forced’ to make these payouts in order to retain their key staff, my retort is simple: are these the key players who destroyed the economy? Are they the ones who bought CDS contracts from AIG without doing the simple due diligence that would have unearthed AIG’s inability to pay out? Are they the ones that constructed and sold Mortgage Backed Securities so riddled through with theoretical and practical error that we still don’t know what – if anything – they are worth? And are they the same people who funded the glut of commercial real estate that even now threatens to engulf the banks in a new wave of failure?

If so: let them leave. Send them packing. Denounce them. Let them flee the coop and go into private banks, hedge funds, and other corners where they will no longer represent such a clear and present danger to our society.

But for goodness sake don’t pay them obscene bonuses.

What are you thinking?

Good luck Mr. Angelides. Much as I would like to think you will be able to bring sanity back to banking, something tells me that the banks have already mobilized their lobbyists to blunt the thrust of your work.

I hope not. These people are a threat to us all. They must be stopped.