Looting Stars

Wall Street excess: What will it take for bankers to show a little remorse?
Economist StaffJanuary 29, 2009

“The road of excess leads to the palace of wisdom,” wrote William Blake. Not on Wall Street. At a time when its erstwhile titans could do with displaying contrition, signs of hubris abound. The most glaring is the sacking by Bank of America of John Thain, Merrill Lynch’s former boss, after he rushed through generous bonus payments for his investment bankers despite disastrous losses, and the revelation that he spent $1.2m refurbishing his office. Citigroup, meanwhile, has cancelled an order for a $50m executive jet, though only after flying into flak from the media and the Treasury. And, as he fights off lawsuits from angry investors, Dick Fuld, one-time leader of the now defunct Lehman Brothers, has sold his three-acre Florida estate for a princely $100 — to his wife.

The recriminations over Mr .Thain’s departure suggest that Wall Street’s finest were busy elsewhere when Barack Obama exhorted Americans to “set aside childish things.” While apologising for his opulent office refit, he defended the bonuses as necessary to retain talent (in this market?) and reward those unconnected to mortgage losses (whatever happened to collective responsibility?). For his part, Bank of America’s head, Ken Lewis, by now consumed with buyer’s remorse, may have known more about the handouts than he let on. His hold on his job looks fragile. Mr Thain’s role is being looked into by New York’s ever-vigilant attorney-general.

The affair could be “the last nail in the coffin” of public trust in bankers, sighs one investment-bank boss, adding that “We can now add moral bankruptcy to the financial sort.” To some, Citi’s aeroplane fiasco is equally confidence-sapping. How can a bank that owes its survival to the taxpayer think it acceptable to procure a jet that boasts “uncompromising cabin comfort” and to hold on to several others (plus a helicopter)?

The explanation may be that finance’s most recent golden age created a culture of entitlement so deep that it survives, for a while at least, even when boom turns spectacularly to bust. It is telling that fully 79 percent of Wall Street workers who responded to a poll by said they received a bonus for 2008, despite the carnage. Almost half said they were dissatisfied with the amount received.

This lack of humility could cost moneymen dear as it whips politicians and the press into an increasingly hostile alliance. The new treasury secretary, Tim Geithner, has already promised closer oversight of banks that receive public funds. Meanwhile, unearthing venality is the latest journalistic pursuit.

The loss of confidence in bankers can now be tracked. According to a financial-trust index launched this week by academics at the Kellogg School of Management and the University of Chicago, only 22 percent of Americans have faith in the financial system. Intriguingly, however, even fewer approve of the government’s handling of the crisis. As much as Wall Street’s erstwhile masters of the universe have helped to sully their own reputations, they remain less frowned upon than their handlers in Washington, DC.