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A Fair Question

Even monkeys might resent the return of record profits—and record bonuses—on Wall Street.

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Fairness—and resentment at the perceived lack of it—is an ingrained human instinct. It’s one of the first things children learn to complain about. But it’s more atavistic, even prehuman. In one experiment, scientists at Emory University offered capuchin monkeys food in exchange for tokens. The monkeys were happy to get slices of cucumber, until they saw other monkeys getting grapes, at which point they got angry and stopped cooperating.

Which brings me to the question of the return of the gusher of wealth on Wall Street. How much longer will most people accept their token rewards in the face of bankers’ outsize ones? A year ago, these banks were in desperate straits and needed to be reinforced with tax dollars by Hank Paulson, the latest Goldman Sachs alumnus to become Treasury secretary. Yet this year Goldman is on track to hand out $23 billion in compensation, as though the bust were just a regrettable blip.

Maybe New Yorkers ought to be glad that Goldman is flush again. It is a vital prop to the city economy. But most of us aren’t, because we don’t think it’s fair. Despite Goldman’s effort to convince us otherwise, the firm now has a government backstop. It can gamble with its capital knowing that, if worst comes to worst, it will probably get bailed out. That puts bankers in a special category: the risk-free winner. They remain among the best-rewarded employees in America, while being treated like autoworkers: The Feds will go to extreme lengths to stop their companies from going under.

Bankers, meanwhile, have their own theory of fairness. It is highly developed by the tussle over the bonus pool, which banks such as Goldman set aside each year, devoting around 50 percent of their revenues to rewarding their employees. When the big number is known, everyone fights over their share. A banker believes it is only right that he gets such large bonuses because he works hard and devotes his life to the bank. Surely, he thinks, he should get a cut of the profits. If not, he can pack up and start up a hedge fund or work elsewhere.

Bankers got their sense of fairness—you could call it entitlement—from the old Wall Street partnerships, which shared out half of their profits among the partners. Except the partners had to keep their equity in their firms until they retired because the banks needed it to do business. That’s not the case anymore for shareholder-owned banks that are, on top of it all, backed by the taxpayer.

So who wins the face-off between notions of fairness? History suggests it will not be bankers, though the loss won’t happen right away. Resentment is often best served cold. The 1933 Glass-Steagall Act, which broke up J.P. Morgan & Co. (as opposed to the modern-day JPMorgan Chase, which made $3.6 billion last quarter), occurred four years after the 1929 crash. They were preceded by the 1933 Pecora Senate hearings, which summoned Wall Street to D.C. The final report talked of “the incalculable benefits flowing to the American people … in the form of enlightenment as to the practices which have cost them so dearly in the past.”

By then, Jack Morgan had been humiliated by having a circus midget placed on his lap as a stunt in a break in the proceedings. Morgan smiled at her, and the photographers got their shot of the rich, befuddled financier. Now that was unfair. Though it feels less and less so to us cucumber-munchers these days.

Gapper is a Financial Times columnist.

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