As markets rallied last year, investment banks paid back TARP funds and Wall Street reactivated steakhouse tabs en masse. A return to Bonus Bonanza was almost preordained. According to Bloomberg, financial services profits could triple by 2011. Goldman Sachs (GS) is getting ready to report what looks to be its biggest profit on record. Some of the top banks in the country are about to pay at least 40% of that windfall out to employees.
Main Street—with double-digit unemployment, record foreclosures, and even soaring food-stamp use—eat your heart out.
It is amid this disconnected backdrop that the Financial Crisis Inquiry Commission convenes in Washington on Wednesday, Jan. 13, for its first hearings. Congress created the 10-person commission to study how the financial system very nearly failed, asking that it report its findings by December—that is, more than two years after the commencement of the dreadful chain of collapses that marked the Panic of 2008.
So much for slamming the barn door. Where was Congress when the nation—cuff-linked or not— was bingeing on subprime head cheese? That's beside the point now. What you need to know is that there will be some choice flogging on view when the suits from Goldman, JPMorgan Chase (JPM), Morgan Stanley (MS), and Bank of America (BAC) belly up to the mic. (Lest it be forgotten, these are the folks that President Barack Obama referred to on Dec. 13 as "fat cats.") Considering the cringe-worthy history of such Hill-CEO encounters as Detroit's private jet fiasco last year; oil company executives explaining high gas prices in 2008, and Big Tobacco's infamous "nicotine is not addictive" hearing in 1994, C-Span may want to think about running the proceedings on pay-per-view.
In that spirit, here's a quick-and-dirty user's guide on what to expect from the festivities:
Ersatz Humility
The past two years marked an unprecedented government intervention to address the multitrillion-dollar financial meltdown. Enter TARP: The $120 billion-plus, 100¢-on-the-dollar bailout of American International Group (AIG) transitively bailed out every house on Wall Street. Along the way, the financial sector was chastened as never before. The era of the bumper-crop bonus was over.
No one truly expected a heartfelt shift in world view from our captains of high finance. Wall Street masters of the universe have historically held a high opinion of their deeds. Recently, Goldman CEO Lloyd Blankfein even dared suggest that he was "doing God's work." You, on the other hand, don't know what they do. You will never appreciate how they spend nights and weekends away from their families, eating lunch out of Styrofoam, and generally contributing to a higher divorce rate. The bankers' take on all this: They earned what they made, so bug off.
In this environment, bankers won't dare take that tone to Capitol Hill. Look for them to try to convince you that they are sharing your recessionary pain.
Already, Goldman, BofA, JPMorgan, Morgan Stanley, and Citigroup (C) have warned their thundering herds to brace for less immediate bonus gratification (cash) and more deferred compensation (long-term stock). Although some divisions have cushioned the blow to morale by bumping up their workers' base pay, expect the testifying CEOs to plead that they're exercising discretion. (Never mind that a routine $500,000 Wall Street payday still represents nearly 10 times median U.S. household income).
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