Bankers' bonuses benefit Main Street

It isn't often that one of the least popular governors in the nation says something to earn himself enthusiastic applause and modestly positive press. That scenario materialized last week as New York Governor David Paterson vigorously defended both Wall Street and the executive bonuses that have generated unrelenting public opprobrium.

In the chaotic aftermath of the financial crisis, bankers are held in roughly the same esteem as third-world dictators or serial killers, making Paterson's remarks seem unusual. But as the word "bonus" has become something of an epithet among average Americans, a simple arithmetic formula neatly encapsulates the governor's unlikely support for Wall Street: New York's economy minus bonus money equals state fiscal crisis. It also illustrates why President Barack Obama and Congressional Democrats are now increasingly vulnerable to a growing political backlash fueled by class resentment that they themselves have stoked over the last several months.

Earlier this week, President Obama pressured bankers who have failed to lend, even as many of these firms have returned to doling out large sums of executive compensation. But like most of the public initiatives undertaken by the president in recent weeks to demonstrate that the economy is his top concern, the meeting was a nod to growing popular discontent over the lack of jobs and available credit. The president's proposal to use leftover bailout funds to help fund a jobs-creation program reopened a wound in the body politic that has proven difficult to salve.

For months, President Obama and his fellow Democrats have employed bonuses as a useful political cudgel to intimidate banking executives into complying with plans to tighten regulation on the financial sector and executive pay. But by continually embracing their inner class warrior, the president and his party have created a poisonous atmosphere that distorts the real issue: the resumption of bonus payments are necessary to lift the economy from the doldrums and provide badly-needed state and local revenues.

Amid all the sound and fury generated by banking bonuses, left unspoken are the external (or "trickle-down") benefits that those amounts provide to large states like New York. The money made by Wall Street's "fat cats" underwrites enormous swaths of economic activity and provides revenue for government services. Democrats indulge populist rhetoric to cast themselves as defenders of the poor and middle class, while conveniently ignoring the fact that bonus cash often finds its way to small-businesses, sparking job creation and supporting industries that rely heavily on top income earners. The crisis has also impacted many middle-wage earners who were not bankers, but also rely on bonuses to supplement their incomes.

By spouting simplistic populist pabulum about Wall Street and minimizing the central role the industry plays in insuring the nation's economic health, the president and his fellow Democrats are embracing a brand of unrepentant class warfare that has led European governments to float tax proposals that are counter-productive to innovation and wealth creation. It also underscores an inconvenient reality that crosses the line into hypocrisy: in recent election cycles, donations and vital political support from Wall Street has largely favored Democratic candidates.

Without question, economic activity in the financial sector during the last several years was the product of an unsustainable misallocation of wealth and a series of bad decisions made by bankers and consumers alike. The global economy in now in the throes of a difficult yet necessary correction that should result in normalized compensation and debt levels.

But Governor Paterson is correct to call for an end to the gratuitous bashing of Wall Street. Democrats - including President Obama - would do well to take heed.