The financial services industry went from having a 19 percent share of America’s corporate profits decades ago to having a 41 percent share in recent years. That doesn’t mean bankers ever represented anywhere near 41 percent of America’s labor value. It just means they’ve managed to make themselves horrifically overpaid relative to their counterparts in the rest of the economy.
A banker’s job is to be a prudent and dependable steward of other peoples’ money – being worthy of our trust in that area is the entire justification for their traditionally high compensation.
Yet these people have failed so spectacularly at that job in the last fifteen years that they’re lucky that God himself didn’t come down to earth at bonus time this year, angrily boot their asses out of those new condos, and command those Zagat-reading girlfriends of theirs to start getting acquainted with the McDonalds value meal lineup. They should be glad they’re still getting anything at all, not whining to New York magazine.–Matt Taibbi, Rolling Stone (FEBRUARY 8, 2012)
Edward Hadas is an editor at Breakingviews.com, a London-based financial commentary service and teaches philosophy and Catholic Social Teaching at Maryvale University in the UK. His recently released short little book The Credit Crunch gives an incisive analysis of the current economic crisis through the lens of Catholic Social Teaching in very accessible language. Below is an excerpt from Will Chambers’ review of The Credit Crunch:
The author first of all points out that our financial system has brought great benefits. Then he contrasts the liability of financial systems to repeated crashes against the reliability of air transport, where the techniques for recognising and managing risks in large and complex systems are well understood. He then asks why finance should be so accident prone. First he gives a quick definition of finance, and emphasises the need for trust. He then introduces two “lies”, which when linked to greed are the causes of the breakdowns.
The first lie, oddly called “noble”, is that resources claimed by two parties are regarded by each party as belonging to themselves alone. When I deposit money in a bank I still regard myself as owning it, although it has in most cases been loaned out to a borrower who regards it as for his own use (at least for the time being). Without this lie it would be very hard to borrow money for large projects. Greed causes this lie to give rise to trouble when the lender asks for too much interestor when the borrower exceeds his means to repay.
The other lie, the “ignoble” lie, is that one should strive for the highest possible returns. But beyond a certain level one man’s gains are another man’s losses, and so this form of greed leads to a wealth gap, and also to disappointment for most people, since there must be an upper limit on what one can expect without increasing genuine wealth creation.