By Allan Sloan
Tuesday, January 19, 2010; A12
It's bonus time, Wall Street's days of wine and roses, when employees find out how rich they're going to be. But this year's bonus season has morphed into days of whines and poses.
The Street, tin-eared, is whining about the people who are enraged by multibillion-dollar bonus pools at a time of 10 percent unemployment and public angst. It's trying to solve its problem by posing as a public-spirited operation (rather than Greedhead Central) by showing off charitable contributions and small-business loan programs. That maneuver can't possibly work.
In happier times, Wall Street could explain away its obscene compensation levels by saying it needed to pay whatever it took to keep the best and brightest onboard. But that doesn't resonate these days, given that Wall Street's meltdown touched off the Great Recession, the effects of which linger almost everywhere but the Street.
The fact is that even sound, well-run outfits such as Goldman Sachs and J.P. Morgan Chase were saved by taxpayer money after the Great Credit Crunch in mid-2007. Had the Federal Reserve and other central bankers not flooded the world with cheap cash, Goldman and J.P. Morgan's counterparties -- the ones on the other side of their market bets -- would have failed. That would have wiped out Goldman and J.P. Morgan. The $240 billion of TARP money that was lent to banks (most since repaid) was a relatively trivial amount.
In an ideal world, this year the Street would acknowledge the public largess by having the sense not to pay bonuses of more than six digits -- hey, worker bees need money in order to survive in the high-cost New York City area -- and they would make a nice, voluntary contribution to the government that saved it. But the Street isn't in the gratitude business; it's in the making-money business.
Washington is no prize, either. It whines about Wall Street and adopts symbolic poses -- denunciations of "obscene" bonuses and "fat-cat bankers" by President Obama, for example -- but doesn't do the substantive thing: breaking up those institutions so that they're not too big to be allowed to fail. The pols don't want to mess with institutions that have real power, are sources of campaign contributions and can offer lucrative post-public-office employment.
How can we bridge the Wall Street-Main Street divide? We can't. But we can prevent funding bailouts only to watch the Street snap back and earn tremendous profits while the rest of the country continues to suffer.
First, we do the obvious thing: Break up giant institutions into safe and boring operations (such as taking deposits and making personal and commercial loans) and gunslinger operations (such as speculating in credit default swaps). We'll provide federal backing to the safe and boring, but not to the gunslingers.
Getting commercial banks out of the gunslinging business would also eliminate the financial arms race that led to the now-departed Bear Stearns and Lehman Brothers taking on excessive risk in order to compete with investment banks owned by commercial banks.
The gunslinger firms would be allowed to fail, they would not have public money at risk through owning their stock, and they could pay as much in bonuses as they wanted because as private entities they wouldn't have to disclose much, and no one outside of Wall Street would know or much care about what they're paying.
Their managers and employees wouldn't be able to cash out by selling stock in the public market, as they can now. Tough.
We regular citizens would be off the hook for Wall Street's risky business, and the Street could do what it wanted with its own money, the way hedge funds and most buyout firms do now. There'd be a lot less whining and posing. But I think we can live with that.
Allan Sloan is Fortune magazine's senior editor at large.