Banks Paying a Price for Their Epic Greed

Doctors. Lawyers. Architects. A decent society certainly needs them all. But what about bankers? Is banking also a necessary profession? Or is banking merely a grubby game where the few enrich themselves at the expense of the many?

These days, the answer seems fairly obvious. We've simply seen too much enriching at our expense -- bank mergers that have transformed local banks into faceless fronts for faraway corporate empires, escalating "fees" that bleed our checking and savings accounts, subprime mortgage shell games that devastate entire neighborhoods.

Now banks appear to be paying the price for this great greed grab. One giant Wall Street investment bank, Bear Stearns, has already tanked. Citigroup, America's largest bank, last week posted a $2.5 billion quarterly loss. Share prices in the banking industry have tumbled down 50, even 60 percent and more.

Bank boards of directors, amid this turbulence, are scrambling to find shining knights who'll rescue them -- and they're offering fabulous rewards to give these power-suited knights an incentive to succeed.

Earlier this month, for instance, Wachovia, the nation's fourth-largest bank, brought on a new chief executive, former Goldman Sachs alum Robert Steel, with an pay package that could be worth over $38 million. Citigroup's new chief exec, Vikram Pandit, joined the banking giant last year after Citigroup shelled out $800 million to buy the hedge fund he had started the year before. That transaction netted Pandit $165 million. Then this past January, a month after elevating the India-born Pandit to CEO, Citigroup awarded him a stock incentive package worth another $30 million, a sum, the Economic Times of India has noted, that equals nearly six times what all India's banks taken together last year paid their top executives.

To American "expert" eyes, incentives this lush make perfect sense. "That's nothing," as University of North Carolina-Charlotte finance prof Tony Plath told a reporter when asked about the $38 million for Wachovia's new CEO. "You pay him whatever you have to in order to save the bank at this point."

Give new superstars enough incentive to succeed, in other words, and banking's woes will all work out. This analysis has just one inconvenient flaw: Windfall incentives for bank CEOs created those woes in the first place.

Bankers, of course, have always endeavored to make money. But in generations past, long before subprimes, many bankers considered banking more than a money chase. These bankers saw themselves, explained the New Yorker earlier this year, as professionals engaged in a "sacred trust, an enterprise that embodied values superior to the merely material."

Novelist Louis Auchincloss, a most perceptive observer of America's most privileged, captured this perspective years ago in a book he set in the 1930s.

"Banking isn't just money-making," Auchincloss had one banker telling another. "Banking is starting new businesses and saving old ones. Banking is helping the right-man over a bad time. Banking is keeping the heart of the economy pumping. If you don't feel that way about it, you ought to quit and become a stockbroker."

Auchincloss's banker hero was fighting a noble but losing battle. The money-makers had overrun banking in the 1920s, a go-go financial era much like our own. Their excesses would eventually help usher in the Great Depression.

The New Deal, in response, would ultimately curb the "just money-making" spirit by rigorously regulating how bankers do business -- and raising taxes substantially on income in the highest tax brackets, a move that tended to dampen incentives to push the regulatory envelope. After all, why take risks to earn extra millions if Uncle Sam was just going to tax the bulk of those extra millions away?