Banking Is Back

Just in case you were worried about all the investment bankers on Wall Street, don’t. There’s an article in today’s New York Times reporting that the top 25 hedge fund managers took home an average of $1 billion each last year. That article describes the general status of the banking industry this way: “the Lazarus-like recovery of the nation’s big banks.”

In case you don’t know, Lazarus was raised from the dead by Jesus in the Gospels. Given that Bear Stearns, Lehman Brothers, and Merrill Lynch all disappeared as healthy, independent entities, and that many other large firms had to go to Uncle Sam with their hands out to survive, describing them as Lazarus-like doesn’t seem much of a stretch.

But almost two years after the big banks own practices got them into deep trouble, and dragged a lot of America with them, everything is fine. The stock is up in many cases — Uncle Sam is looking to make a significant profit on selling Citigroup stock that it received for its TARP payments to Citi. And other banks have made significant repayments on their TARP obligations.

And while the top 25 hedge fund guys were the big winners in compensation in 2009, a lot of people at the investment banks saw huge bonuses last year.

In a little while, the whole financial-markets crisis of 2008-2009 will have disappeared like a ripple in the surface of pond water.

Except for one little problem: Nothing has been done to change the way the market operates — nothing has been done to protect Americans from Bankers Gone Wild.

The banking industry has lobbied hard to keep new federal regulations at bay, and from the way many Republicans in Congress are talking, they have a pretty good shot at succeeding. The reform package being pushed by Senator Christopher Dodd (D-Conn.) is a watered-down version of the reforms that President Obama wanted, and even that watered-down version is drawing a lot of flack in committee — it hasn’t even reached the floor of the Senate yet. If it manages to pass out of committee, it is almost certain to be even more diluted than it is now, packed with meaningless changes and wondrous loopholes.

Ironically, some within the banking community feel more regulation is needed. Also in the Times this morning, Andrew Ross Sorkin quoted Morgan Stanley chairman, John J. Mack, about the need for more regulation: “We cannot control ourselves. You have to step in and control the Street.” At least Morgan Stanley, according to Sorkin’s article, has pared back risk voluntarily.

But John Mack and Morgan Stanley may be the rarity. Sorkin goes on to say that Simon Johnson, a professor at the Sloan School of Management of M.I.T. and the author of a new book, 13 Bankers, recently wrote on his blog that the banks are winning over lawmakers.

“The public relations machines of today’s bankers may be even more effective than those of Morgan and Rockefeller, although the campaign contributions and control of the Senate exercised by those titans was immense,” Johnson wrote. “If the banks win this round, as seems likely, they will become even larger — and more dangerous. At current scale, our megabanks bring no social benefits and great social risks.”

In other words: Nothing’s changed. The regulations, or lack of regulations, that allowed the last financial debacle to occur still exist. Which means the only thing protecting America from another market crash is the good will and common sense of those in the banking community.

This is like hoping that Uriah Heep is going to develop a winning personality and become a generous benefactor to mankind.

Charles O. Prince III, Citigroup’s former chief executive, described the mania that seized the investment community at the height of the pre-crash bubble and said, “As long as the music is playing, you’ve got to get up and dance.”

Unfortunately for most of us, the orchestra’s still playing.


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