'One More Bubble!'

When I took an editing job at Bloomberg News in March 2000, my arrival
coincided with the bursting of the Internet bubble. As once-hot IPOs
tanked and the Nasdaq crashed. I would joke to other editors that what
the U.S. economy needed was "to build a better bubble."

Then, to my amazement that was pretty much what happened, except that
the bubble moved from the peripheral world of dot.com startups to a
cornerstone of the economy, the real-estate sector. Low interest rates,
exotic financial instruments and speculation pumped up the economy
again, with Wall Street operatives enriching themselves as never before.

Now, as the housing bubble has burst and taken with it trillions of
dollars in wealth, President Barack Obama may be right that the future
U.S. economy cannot be built on another bubble, that America must get
back to manufacturing products that people need.

However, that goal is endangered not only by Republicans, who seem
determined to sink whatever Obama proposes, but by the fact that
speculative bubbles are what make possible the obscene levels of
compensation - and Wall Street is not about to give up on the golden
payday.

Without bubbles, Wall
Street bankers and their many cohorts could make solid salaries - as
they have historically - but not bonuses in the millions of dollars a
year. So, there is a powerful incentive for Wall Street to push for a
continuation of the bubble economy. Perhaps the new slogan could be,
"One more bubble!"

The
corrupting influence of the bubble economy also is not confined to Wall
Street. While it's true that Wall Street bigwigs have sipped at this
giant champagne glass of riches the most, some wealth has trickled down
- not to the average Americans, of course, but to other insiders from
the worlds of politics and media.

In that way, former President Bill Clinton could leave office in 2001 -
having overseen the expansion of "free trade" agreements and banking
deregulation - and then make millions of dollars from speaking to
corporate and leadership groups, plus millions more for serving as a
front man for billionaire investor Ronald Burkle and other super-rich
financiers.

Wall Street
analysts for CNBC and other news outlets also can duck in and out of
the banking and hedge fund worlds, a la Jim Cramer, sometimes
leveraging their on-air advice to the benefit of their investments or
their clients. CNBC often behaves more like a booster of Wall Street
interests (and a defender of lucrative compensation) than a public
watchdog.

Corrosive Effects

This insider world of the big bonuses, fat salaries and hot stock tips
has other corrosive effects, as financial regulators and political
advisers are tempted by the princely sums that might become available
to them if they play their cards the right way.

Much like Pentagon bureaucrats who sign off on unnecessary weapons
systems waiting for retirement day and a seat on the corporate board of
a grateful military contractor, government overseers of the financial
industry have similar - and arguably greater - temptations.

In recent weeks, for instance, the public has learned that key figures
in devising Obama's strategy for combating the financial crisis have
been offered - or have received - enticements from this grand world of
big money.

Chief economic
adviser Lawrence Summers, who as Clinton's Treasury Secretary helped
implement key deregulation of the banks, made $5.2 million in 2008 for a one-day-a-week job at the D.E. Shaw hedge fund, while also pulling in $2.7 million in speaking fees from Citigroup, Goldman Sachs and other Wall Street titans.

Even more shocking to some observers,
Summers strayed from his fulltime job as president of Harvard
University to do moonlighting from 2004 to 2006 as a consultant for
another hedge fund, Taconic Capital Advisers.

The case of Treasury Secretary Tim Geithner is a bit different, since
he has spent his career in government-related agencies as a "public
servant," including Clinton's Treasury Department, the International
Monetary Fund, and the New York Federal Reserve.

But Geithner appears to have had his head turned by the pleasant luxuries of the super-rich, too.

According to a New York Times article by Jo Becker and Gretchen Morgenson, his calendars from 2007 and 2008
were chocked full of professional and private contacts with executives
of banks - Citigroup, Goldman Sachs and Morgan Stanley - whose
activities were regulated by Geithner's New York Fed.

The article reported that Geithner was especially tight with executives
of Citigroup and that he met frequently with Sanford Weill, a major
shareholder and former chairman.

"As the bank was entering a financial tailspin, Mr. Weill approached Mr. Geithner about taking over as Citi's chief executive," the Times said, adding:

"But
for all his ties to Citi, Mr. Geithner repeatedly missed or overlooked
signs that the bank - along with the rest of the financial system - was
falling apart. When he did spot trouble, analysts say, his responses
[as head of the New York Fed] were too measured, or too late."

Given the magnitude of compensation available to top executives, Weill
was not just offering Geithner a job as CEO, but rather was dangling
the keys to the jewelry vault at the castle, assuming that Citi did not
collapse first.

Now, as
Treasury secretary, Geithner is the point man for arranging massive
infusions of taxpayer dollars into Citi and other major Wall Street
banks to ensure that they don't go under, that the old financial system
survives.

Throwing Off the TARP

Geithner's strategy for salvaging the banks has been criticized by some
economists and many citizens as too generous with the taxpayers' money
and too lenient toward the chief culprits of the financial debacle.

But - combined with the Federal Reserve's decision to lend the banks
money at nearly zero percent interest and other emergency measures -
the bailouts have put some banks in a strong enough position that they
already are chafing under the federal government's demand that they cut
their compensation.

Some
banks are offering to pay back the direct federal bailout money to
evade the compensation constraints, while their media allies - from
CNBC and Fox to the Wall Street Journal and the Washington Post's
editorial page - have complained about excessive government
interference in the private sector.

By escaping from the Troubled Asset Relief Program, the bankers could
return to the party-on days when they viewed themselves as "masters of
the universe" who could buy pretty much anything or anyone they wanted.

The pressing question about Geithner is whether his personal contacts
with Weill and other banking executives - and the prospect of landing a
future job as CEO of Citi or some other major bank - influenced his
policy decisions.

Given the staggering sums of money, it's hard to believe that it wouldn't have.

After four years as a Bloomberg News editor reading proxy filings that
disclose executive compensation, I came away with a profound sense that
the sums had gotten so crazy that almost everyone who could grab a
piece would do whatever it took to get one.

Another one of my sayings became: "The closer you are to the money, the more you get to keep."

The balance between integrity and compensation had gotten so far out of
whack that it would require a saint to put doing the right thing over
taking oodles of dough, so much money that it would mean you'd never
have to worry about your personal finances again.

That's why I disagree with some analysts - such as the editorial-page editors of the Washington Post
- who keep insisting that compensation is only a small part of the
problem and that the public is foolish to be so outraged about
bailed-out companies like AIG continuing to dole out bonuses.

It's true that the bonuses pale when viewed next to the total scope of
the financial meltdown, but the compensation is the principal motive
for the extraordinary risk-taking that started the meltdown.

The compensation also influences the policymakers and regulators whose
job it is to stop the high-rollers from putting the economy in
jeopardy. If some government bureaucrat sees the chance for a mammoth
payday in the future, who'd be surprised if the money didn't limit acts
on the people's behalf?

And there are also the campaign checks that financial industry PACs write to helpful legislators of both parties.

In short, the multi-million-dollar bonuses and all the other fat
compensation packages have distorted the American system in big ways
and small.

All that Wall
Street money also has left many Americans wondering if anyone - in
business, politics or media - cares about the larger fate of the nation
or if the primary goal right now is to inflate "one more bubble."