Freak Out on Wall Street

Obama’s pay-cap plan could wreck the banking business, not to mention the middle-class workers who live off it.

02.05.09 10:27 AM ET

My cellphone began ringing at around 7 a.m. yesterday and nonstop after that. "Is he out of his fucking mind!" The voice on the other end was one of my best sources on Wall Street—a former bond trader and entrepreneur who left Citigroup about three years ago to set up his own small, but profitable brokerage operation. His name is Billy. He's worked on Wall Street for about 25 years and he has seen it all: Citigroup's celebrated creation by Sandy Weill and its embrace of risk, its implosion under Weill and his successor Chuck Prince, and the dithering of current CEO Vikram Pandit in trying to fix the firm's massive problems, which include investments in billions of dollars in illiquid securities that led to the recent government bailout of one of the world's largest banks.

Maybe the most disheartened of those affected by the salary cutbacks are the people who earn middle-class livings from the excess of the street: the waiters, waitresses, drivers.

Billy is no fan of executive bonuses in this environment. "These guys should get nothing—zero," he has told me on more than one occasion. But he also believes President Obama's plan to regulate salaries of Wall Street executives may make great headlines, but will have little if any practical effect. He, like many people I've spoke with during the past two days since the president's plan was announced—and not all of them Wall Street types—believes it will do more harm than good.

"Obama doesn't understand Wall Street... Pandit is rich, rich beyond belief. Why should he work at a place where he's got the government breathing down his neck? He can just retire. And I couldn't care less about Pandit. There are still good people at Citigroup. They're going to leave. They'll go to other firms that don't take government funds. Citigroup will lose its best and brightest. It will become the DMV of the financial business."

I know, I know, it's hard to feel sorry for the "good people" at Citigroup or any of the other big financial firms that rolled the dice with the balance sheets, lost and plunged the country into economic chaos, all while they were decorating their offices with $87,000 rugs and flying in $50 million private jets and sucking in billions of dollars in government assistance. For years, they've earned salaries (and I use the term "earn" loosely) beyond what most Americans could imagine by marketing a skill that, at bottom, was nothing more than high-stakes gambling. In 2006, just before the whole seedy mess came crashing down in massive losses, the heads of the top firms lavished themselves with the highest salaries ever seen on the street: $40 million, $50 million and $60 million. The excess trickled down to the lowliest trader who could earn $1 million a year in his or her sleep.

Even in its despair, Wall Street indulges—billions of dollars in bonuses were just awarded by firms that needed government bailout money. But there is something unsettling about a bunch of politicians using Wall Street as a whipping boy, which more than a few Wall Streeters pointed out yesterday in their various rants. The Treasury secretary, Tim Geithner, who unveiled the plan at a press conference, seemed a little too stern yesterday admonishing the excess of Wall Street given his past record of tax avoidance; the president calls on Wall Street to show restraint, and rightfully so, but where was his own restraint when he accepted housing assistance from convicted felon Tony Rezko?

"These guys have been screwing taxpayers for years," said another Wall Streeter. "When they leave office, they get jobs as lobbyists and then look for ways not to pay nanny taxes. It's a joke. I can't believe he had the balls to come out with this with all this Daschle shit going on."

Tom Daschle's failed nomination to the Obama Cabinet notwithstanding, there's the practical reality: If Citigroup or Bank of America are to survive, they need good people who will want to get paid. The culprits have all gone—the teams of bankers and traders that plunged Lehman, Bear Stearns, Citigroup and Bank of America into chaos are out, living off their salaries and perks while the people who remain are told to clean up the mess and earn a lot less in the process. "Citigroup is going to be a government agency. The people who stay there will be paid like bureaucrats," said another trader. "So I ask you a question: Why would anyone want to work at Citigroup ever again?"

Maybe the most disheartened of those affected by the salary cutbacks are the people who earn middle-class livings from the excess of the Street: the waiters, waitresses, drivers—all those average folks who seem to understand elementary economics better than the populists in government who claim to be their representatives. They understand, for example, when the Wall Street bonuses come rolling in, the greedy bastards with huge bonus checks go out and spend it, and they, in turn, benefit by sending their kids to Catholic schools instead of the crime-ridden public schools, by paying down the mortgage on their home, which is a hell of a lot more cozy than the local housing project, and every now and then splurging on dinner with their own families.

"Charlie, when is this going to end?" asked one of the waiters at San Pietro, a frequent haunt of the Wall Street power class. The waiter is an immigrant from Italy; his wife just had their first child, and he's understandably worried about making ends meet. I asked him if he meant when the financial crisis is going to end, and he said no, not really. He wanted to know when the politicians will leave his customers alone. "People aren't spending money." What this waiter knows better than the political class is when the greed merchants don't spend money, average Americans don't make money, at least not enough money to pay the mortgage and send their kids to Catholic schools.

Charles Gasparino appears as a daily member of CNBC's ensemble. He is also a columnist for Trader Monthly Magazine, and a freelance writer for the New York Post, Forbes and other publications.