Now, what Mr. Krugman fails to do is explain the difference between a "banker" and an "investment banker." A banker is a fat man with glasses who knows the combination to the big walk-in safe where all of your money is stored. He wears a top hat and yells at bank tellers all day. Once in a blue moon, he might slap a bank teller on the fanny and tell her to get him some coffee. Good times. An investment banker creates wealth and opportunity by explaining what works and what does not work to a client. Krugman is right if he's just talking about the aforementioned fellow who slaps the tellers on the rear and leers at them in the vault.First, there’s no longer any reason to believe that the wizards of Wall Street actually contribute anything positive to society, let alone enough to justify those humongous paychecks.Remember that the gilded Wall Street of 2007 was a fairly new phenomenon. From the 1930s until around 1980 banking was a staid, rather boring business that paid no better, on average, than other industries, yet kept the economy’s wheels turning.So why did some bankers suddenly begin making vast fortunes? It was, we were told, a reward for their creativity — for financial innovation. At this point, however, it’s hard to think of any major recent financial innovations that actually aided society, as opposed to being new, improved ways to blow bubbles, evade regulations and implement de facto Ponzi schemes.Consider a recent speech by Ben Bernanke, the Federal Reserve chairman, in which he tried to defend financial innovation. His examples of “good” financial innovations were (1) credit cards — not exactly a new idea; (2) overdraft protection; and (3) subprime mortgages. (I am not making this up.) These were the things for which bankers got paid the big bucks?Still, you might argue that we have a free-market economy, and it’s up to the private sector to decide how much its employees are worth. But this brings me to my second point: Wall Street is no longer, in any real sense, part of the private sector. It’s a ward of the state, every bit as dependent on government aid as recipients of Temporary Assistance for Needy Families, a k a “welfare.”
He's not wrong if he's talking about investment bankers, such as myself. The services I used to provide were crucial. I would advise people on deals and on the timing of deals. Timing is a crucial factor. Yesterday, a company might be worth millions. Today, it's a bargain at $350K. Tomorrow, it's a dog worth fifty cents. It was my job to know when to buy that company and what to take apart once it was purchased and who might want to buy off those parts. That's what innovation means. That's what Bernacke probably meant. I don't know.
Never met the man. I do know this--Krugman should not run his columns by an actual investment banker once in a while. It would save him the embarrassment of being humiliated for being not wrong.