In Defense of Bankers

Not long ago, American culture abhorred lawyers, mistrusted journalists and envied bankers. Today we ignore lawyers, pity journalists and despise those who are connected to Wall Street—for undermining their own companies, trashing the global economy and being insanely overpaid. Public sentiment has judged the lot of them guilty as hell and sentenced them indefinitely to a mid-six-figure stockade.

This reaction is understandable, but hardly rational. While our financial system as a whole has been revealed to be deeply flawed, most bankers deserve the new loathing no more than they did the old fawning.

One obvious point is being lost in the rush to flagellate Wall Street: the vast majority of toilers in the financial vineyards had nothing to do with the meltdown. Most are themselves victims of poor judgments they didn't make, didn't know about—and would not have understood if they had known about them. The current crisis came about through a toxic cocktail of reckless lending into a government-subsidized real-estate bubble and misjudgments about the risk of complex financial instruments. There were other factors, too. But only a small fraction of people employed on Wall Street worked in areas connected to the big failures. Even within the units that helped to blow up big firms, the damage was done by a minority within the minority.

As an illustration, take the insurance behemoth AIG, which was saved from extinction by an $85 billion government credit line and is now effectively nationalized. On his TV program "Mad Money," Jim Cramer said of AIG's employees (before later apologizing): "We should hound them in the supermarket. We should hound them in the ballpark. We should hound them everywhere they are. We should make fun of them and we should point fingers at them and we should tell them that you have no shame."

If you want to turn purple with rage at the people who wrecked your retirement, you might start with Cramer himself, the most prolific dispenser of bad advice to the investing public. But if you're looking at someone in the securities industry, you'd be justified in directing your anger at Joseph Cassano, who ran the London-based AIG Financial Products subsidiary. This 377-employee unit issued $500 billion in credit default swaps. Losses on these once wildly profitable instruments undermined AIG's credit rating and thereby threatened the global financial system so seriously that the Fed had to step in. But even if you assume that every one of those 377 employees in that London office—the receptionists, the HR specialists, the IT guys—share Cassano's responsibility for downing AIG (and throw in the firm's top management and board of directors to boot), you're talking about less than 1 percent of the firm's 116,000 employees spread among 130 countries.

A week after the bailout, Congress caught wind of AIG's spending $440,000 on a retreat for top insurance agents and reacted as if Bernie Madoff were throwing a ball for Charles Ponzi at Versailles. But as AIG executives not unreasonably pointed out, their ordinary insurance business was profitable, and the people who were making the money for them had no connection to the derivatives madness in London. If the company is going to return to profitability, it's going to have to carry on with its normal business. Like it or not, that business rewards successful salespeople in ways that most jobs do not.