Wall Street is run by multimillionaires—billionaires, sometimes—with very privileged and comfortable lives. The only thing that could conceivably threaten their well-being would be a crisis so big and so global as to make September 2008 look like a mere precursor to the main event. So you’d think that they would be doing everything in their power to minimize the chances of such a thing happening and to lock in their eye-popping gains.
Instead, they seem to be happy just talking about it. “The level of conversation about the problems is as intense now as it’s ever been,” one banker told me. “We’re just midway through dealing with something that’s very serious indeed: We’ve all learned a lesson.”
But it’s not much of a lesson.
After the barely averted apocalypse, Wall Street is left more concentrated than ever and poses a greater systemic risk than before. The demise of Bear and Lehman and Merrill, it turns out, just made Wall Street less competitive and more profitable.
Even at the height of the crisis, in late 2008 and early 2009, there were few apologies; there was no remorse. Today the critical voices are quieter; laissez-faire Republicans are generally ascendant; and Alan Greenspan, of all people, is leading the troops from the FT op-ed page, declaring that the global financial crisis was little more than a “notably rare exception” to the rule that free markets create stability.
In reality, the global economy is so fragile that Treasury and the Fed will be powerless to save us next time around. Every time there’s a crisis, the government has two big weapons in its arsenal. There’s fiscal policy: borrowing money to bail out the banks directly. And then there’s monetary policy: cutting interest rates to bail out the banks indirectly. But both weapons are now spent. We’re at the limit of how much the government can borrow without calling its own creditworthiness into question. And we can’t cut interest rates any further, since they’re already effectively at zero. As a result, the U.S. and the world will be essentially powerless in the face of Crisis II, and the consequences are likely to be truly catastrophic.
And yet, from the Wall Street point of view, everything was going swimmingly until there was an unforeseeable, once-a-century financial earthquake that cost a lot of good bankers their jobs and wiped out a substantial amount of wealth. Viewed from their perspective, those losses were the fault of any number of things, from global capital imbalances to strawberry-pickers taking on mortgages they couldn’t afford. Profits, conversely, come through bankers’ professional acuity, their ability to seize an opportunity.
The losers, like Lehman’s Dick Fuld, were incredulous that they didn’t get bailed out along with everybody else, but for the winners, the riches, which mostly came from buying up weak banks at fire-sale prices and profiting from enormous government subsidies along the way, were wholly deserved. In December 2009, after months of Wall Street bashing, didn’t Barack Obama say that Lloyd Blankfein and his counterpart at JPMorgan Chase, Jamie Dimon, were “very savvy businessmen” and that “I, like most of the American people, don’t begrudge people success or wealth”? Look at Bob Diamond, the CEO of Barclays (which ended up taking over most of Lehman), when he appeared in January before the House of Commons in the U.K. “Frankly, the biggest issue is how do we put some of the blame game behind us,” he said.
And so while the rest of the economy struggles, the financial industry is back to its old aggression. Nowhere was that more obvious than at the World Economic Forum’s annual meeting in Davos, Switzerland, at the end of January. Goldman president Gary Cohn was there, in pugnacious form, saying that regulators were looking in the wrong place if they thought his bank posed any kind of systemic risk. Other bankers, including Vikram Pandit of Citigroup, made similar anti-regulatory noises.
From the opening-night party hosted by Anthony Scaramucci of SkyBridge Capital it was clear that the real story was the end of any pretense at modesty or frugality. A seemingly endless quantity of wines chosen with one criterion only—that they “achieved ‘perfect’ scores” from either Robert Parker, Jancis Robinson, or Wine Spectator—were poured. The wine, for all that—much of it cost upwards of $500 a bottle—was mostly too young to drink. In any case, the finer points of a 2000 Cheval Blanc or 2007 Colgin were almost impossible to appreciate, given that there was barely any food, and that it was all being served with little effort toward presenting the wine to its best effect. Everybody was giddy with the altitude, jet-lagged from just flying in, and drunk from trying too many wines too quickly.