Financial masters still call the shots

An unemployed patient on the methadone program once described to me the internal humiliation and shame he experienced whenever he encountered the confident, well-presented middle classes.

In a surprising twist of status anxiety, I see this inadequacy among people such as doctors, academics and journalists. They began their careers expecting to feel proud of their social position but can feel cheated when their relative worth in the market is more modest.

There was hype that the rule of bankers had come to a close among the ruins of the financial crisis, but this was premature. The professional labour market has essentially become two-tiered, with a uber financial class that continues still to earn many multiples of other occupations.

Last week a report on Wall Street pay revealed thousands of bankers received multi-million-dollar bonuses despite their companies recording heavy losses or receiving taxpayer bail-outs.

Underlining the paradox of modern economies, one of the world’s great companies, General Electric, recorded a big profit drop. It indicates Anglo-American economies are now dominated by financialisation, what the Nobel laureate Paul Krugman calls "the business of moving money around, of slicing, dicing and repackaging financial claims", instead of the actual production of useful stuff.

While moving money around has a purpose - efficiently moving capital to the most productive activities - even the most ardent supporters of the financial class would struggle to assert that this has been happening.

Goldman Sachs made two-thirds of its $2 billion profit in the last quarter from trading its own money in the volatile markets of commodities, currencies and bonds. The original purpose of helping clients and their businesses is a distant memory. The same company sheltered itself from losses by first hyping and selling mortgage-backed securities but then later short-selling that class and making billions. It was all legal, but an indicator they were taking investors for a ride.

The Sydney experience is not as marked, for the financial world is not as dominant as in London or New York. But sections of the luxury goods market, such as prestige cars, still time their stock replenishment with the payment of bank bonuses. As a Sotheby’s worker told me, nothing has really changed among her clients, most of whom are finance workers, except that they try to be more subtle in their conspicuous consumption.

The broader upshot is that there is a new oligarchy in the Anglo-American world, of which Australia is a derivative, one not easily subdued. Investment bankers litter the Obama Administration and they flow easily between Wall Street and Washington.

In Britain both major parties are substantially dependent on donations from hedge funds, while Labour has asked a succession of bankers to lead commissions on topics as far from their competence as public health and welfare.

In Australia a former Goldman Sachs chairman, Malcolm Turnbull, leads the Opposition, and another lawyer turned banker, Graeme Samuels, oversees competition. Two former prime ministerial chiefs of staff, Arthur Sinodinos and Max Moore-Wilton, moved from Parliament House to the financial world. There is a growing exchange between the halls of financial and political power.

A few generations ago those in the military stood at the apex of status and power. War was part of the natural order, the way to resolve disputes. Against the odds, much of it has been tamed and civilised, turned into professional servants.

Now markets are dominant, more so than politics or war, yet the same level of oversight continues to be lacking among its gatekeepers, who are able to extract disproportionate rents. While its leaders are now calling for restraint from regulators to avoid the stifling of innovation, the culture of "Heads, I win. Tails, you lose" - the title of the Wall Street pay report - challenges the notions of meritocracy and reward for innovation which are at the heart of our system.

The issue goes beyond class resentment and is attracting the concern of the Right and Left. The ultra conservative Fox News presenter Bill O’Reilly has lashed out at overpaid bankers.

The trend of the financial industry to become self-serving rather than enabling may once again turn the public consciousness from mere status anxiety into demands for greater regulatory reform of our most privileged industry.