Bankers Testify In DC, Their Pockets Bulging With Cash

A number of the top bankers from firms including Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), and JP Morgan (NYSE:JPM) will testify before the The Financial Crisis Inquiry Commission which has been charged by Congress to look at the reasons for the credit market collapse in late 2008.

The panel’s chairman, Philip Angelides, said “We think it made sense to start by bringing up the four biggest investment banks that were involved in so many aspects of the crisis.” That will cause a rash of finger-pointing as observers of the hearings press for answers about why large banks got bailout money only to almost immediately reward the managements that seem to have run their firms into the ground by investing in toxic assets.

The timing of the hearing are particularly bad from a public relations standpoint. Goldman Sachs is under siege because of the tens of millions of dollars that it is about to pay out in bonuses. No one following the hearings is likely to react well to what The New York Times describes as the “$90 billion for compensation” which the top five American banks will pass along to employees as 2009 pay-outs.

Bankers still face the possibility of very sharp restrictions on their pay, particularly if the Commission points a finger at them as a major cause for the meltdown in the capital markets.

Financial executives make the persuasive argument that once they paid back TARP dollars that they should operate  their companies as they please as long as it is within the boundaries of the national banking laws. That may seem logical enough to them, but a the tidal wave of objections to big pay packages may give Congress the incentive to take the populist action of capping financial firm salaries whether it is “fair” or not. The mid-term elections are just around the corner and every vote counts.

Douglas A. McIntyre