Visualise a meeting in March 2009 between US President Barack Obama and representatives of the country?s biggest businesses ?the flustered Wall Street banking giants. As the chairman of Citigroup tries to explain the arcana of lending, the president interjects sharply, ?All right, I?ll talk to Jamie.?
The name Jamie Dimon ?JPMorgan Chase CEO and chairman?evokes envy in the investment banking community because he has managed to keep his company above water during the financial flood and is also in the good books of an interventionist state.
Dubbed ?Obama?s favourite banker?, Dimon is salvaging the reputation of a currently discredited lot of Wall Street investment banks. If the president thinks highly of him and if he has a hotline to the White House chief of staff and the treasury secretary, the message being conveyed is that his company is clearly one of ?the good ones?.
Since the financial system derailed late last year, both Wall Street power brokers and their friends in the US government have taken pains to personalise the crisis to avoid stigmatising the whole class of investment bankers. The lonesome figure of the mega-Ponzi schemer Bernard Madoff was offered to the wolves as one particularly rotten apple who defrauded clients with rapacious greed. No long, publicised trial of Madoff was conducted, apparently out of fear that it would have washed ashore plenty of impurities from within the financial system in its entirety.
Fears have been expressed in editorials of leading American newspapers that even the new Financial Crisis Inquiry Commission?mandated to conduct a full-scale investigation into the root causes of the Wall Street implosion?is packed with banking insiders who will likely place the blame on specific individuals and practices rather than pillorying the entire profession of financing.
How justified is the curate?s egg theory of Wall Street, i.e. the discrimination between ?good? and ?bad? banks? One argument in favour of a fine-grained distinction among investment banks is their respective financial bottomlines. Stable (and now profitable) banks like Goldman Sachs and JPMorgan cannot be bracketed with the disasters that caved in like Citi, Merrill Lynch and Bank of America. Defenders of Dimon?s present exalted status would ask why he should be castigated and villainised for others? inanity.
But allegations abound that successful banks like Goldman and JPMorgan actually survived and prospered due to their sweetheart deals with the George W Bush and Obama administrations. Goldman?s resilience has been attributed by jealous rivals to its ?revolving door? relationship with whoever is in power in the White House, as well as the clearing of the field of strong competition by the spree of collapses last year.
Many have questioned why Lehman Brothers, one of Goldman?s chief competitors, was allowed to fall when Bear Sterns was bailed out by the government. According to Lawrence McDonald?s A Colossal Failure of Common Sense, Lehman was not ?too big to fail? simply because of personal animosity between its last chairman, Richard Fuld, and Hank Paulson, Bush?s treasury secretary who happened to be the former CEO of Goldman Sachs.
With such murky secrets entombed inside the financial-cum-political backrooms of the system, it is no wonder that the lay American?s revulsion for the non-transparent and wheeling-dealing image of investment bankers continues after peaking earlier this summer over the bonuses wrangle. The constant behind-the-scenes give-and-take between the state and Wall Street insiders does not inspire public confidence that ?good? bankers deserve their tag.
Though the US government has cumulatively acquired a hold over the financial industry as an equity-holder, lender and ombudsman, it remains doubtful whether it can reorient this troubled sector from short- to longer-term goals (read this as curbing instantaneous speculation), keep a lid on bonuses not linked to performance, and force complex instruments like derivatives to be traded in public exchanges.
Investment banking has certainly lost its aura even though the ?good? survivors are now back in the reckoning. But then, history shows that Wall Street stages a return after biting the dust. During the Great Depression, when the American government forced a split between investment and commercial banking and criminalised hitherto accepted financial practices, many wrote epitaphs to world-conquering bankers. But the post-War period saw an even more powerful, although perhaps less arrogant, period for Wall Street.
Steven Fraser?s Every Man a Speculator shows that, right from the 1790s, there were polarised views about the harms and benefits of Wall Street banking. Some worried that bankers were epitomes of filthy corruption, a new robber baron aristocracy above the law. Others held that they were paragons of innovation, enterprise and risk-taking who built the nation?s economic sinews and the ?American Dream??the belief that even a lowborn person with talent could climb the ladder of upward mobility.
Whether investment bankers were conmen, wizards or both has been a contested debate among Americans, with the majority tilting to one side or the other depending on the timing. Fraser?s book reveals that the 1930s were nightmarish days for publicists of Wall Street, with scandals of plummeting stock prices denting their reputation as wealth creators. But in the 1990s, when the financial industry took on a colossal avatar amidst an elongated economic boom, the same bankers were worshipped as the acme whom every young person should emulate for a career.
What could work in favour of investment banking?s rebound this time is that public opinion, which has curdled in the last one year, lacks the longevity to outlast generational change. If history repeats, the Goldmans and the JPMorgans will take solace that the prestige shorn off their business may be restored in a few years. After all, they would say, which American teenager needs a different role model when the banker still bags the fattest paycheques in the land? The Wall Streeter may be in retreat but does not lack means to engineer another comeback.
?The author is associate professor of world politics at the Jindal Global Law School