Grabfest

The cries of "Where's mine?" are getting louder, aren't they? It's clear the Bear Stearns episode will have a seminal effect on economic and social policy. Expect rolling bailouts and interventions to happen over the next couple of years regardless of who wins in November; if you believe John McCain's protestations about personal responsibility and moral hazard, I have a bridge over the Tigris to sell you. Since everyone will foot the bill for the individuals and Wall Street firms who were most idiotic, piggish, or irresponsible during the past few years, it's important to know as much as possible about those who stand to benefit.

From news reports and perhaps personal experience, most people are familiar with those who got in over their heads during the housing bubble and are now in line for a government giveaway. But how many are familiar with those in the financial industry who not only made pantloads of money during the past few years but, because of the Bear Stearns precedent, now have a taxpayer-financed backstop behind them? Here's a bit of perspective that probably won't surprise some readers, but may others. A close friend of mine works at one of the largest sell-side firms on Wall Street. Until around 2003, he made about $1 million total compensation per year. Since then, he's made between $3 million and $5 million per year. Promotion? More responsibility? Nope. He's had the same job, same title, same desk for years. And he's not one of the firm's senior executives. He's a trader whose business directly benefited from the Fed's monetary policy. Now he's obviously well-paid. But it's important to realize that he's far from unique. There are thousands of others like him on Wall Street, some making far more money, and lots in the same ballpark or at least making well north of $1 million a year. Under the Bear Stearns template, his firm would certainly be considered "too important to fail" and thus deserving of taxpayer money in a pinch. And after Bear, its top executives wouldn't be shy about calling up the Fed on a Sunday night and asking, "Where's ours?" Since my friend's firm has been dogged recently by rumors of bad paper (some of which could be on his desk) at some point that scenario might come to pass.

I think Washington's post-Bear Stearns populist tone springs as much from the political establishment's innate sense of self-preservation as from election-year opportunism. Public resentment of "greedy money changers" (or variations of that phrase) has led to some of history's most destructive cases of political and social upheaval. We ain't there yet, or even close, but a lot depends on what happens with the economy in coming years.

Anyway, that's just one quick example. As the Wall Street and Main Street giveaways ramp up and they come for your wallet (either overtly or via inflation) keep it in mind.