09/03/2009 05:12 am ET | Updated May 25, 2011

Should Wall Street Pay Reparations?

"The hardest thing for many auto workers who've been doing the same job for 25 years or so to accept is that instantly, permanently, their standard of living has been ratcheted down 80 percent," said Douglas Stites, chief executive of Capital Area Michigan Works, a career center in Lansing, Michigan.

from Reuters.

Meanwhile, the hardest thing for many bankers is figuring out where to park their record bonus money while not drawing attention from an angry public. How can major Wall Street firms be earning record profits while unemployment is higher and more severe than anytime since the Great Depression?

Frankly, the contrast truly scares me. It's even worse when you realize how we got here. Because we deregulated finance and changed tax policy, an enormous amount of wealth and income was shifted to the top fraction of one percent of the population. That money became our bubble money as it looked for investment opportunities. Wall Street engineers developed new fantasy finance securities to attract those investments. They made more money from those transactions than they had on any other in the history of Wall Street. The party was on. The problem was that those complex derivatives were leveraged upon very shaky assets -- junk debt of all kinds. When reality caught up with those debts the entire fantasy finance edifice crashed. (For the x-rated version see The Looting of America).

When fantasy finance crashed it pushed the real economy of goods and services off a cliff. Why? Because banks of all kinds where loaded with toxic assets and were afraid to make loans to each other or to anyone else. And when finance freezes up in a modern economy, so does the entire economy since everything -- I mean everything -- runs on credit. No credit, no economic activity: crash.

Almost overnight, auto sales plunged by 40 percent worldwide. You can blame GM all you want but they didn't cause the collapse of the auto industry. Wall Street did.

Now here's the painful part. To keep from sliding into the Great Depression II -- and I think we were only a month or two away from that -- the government threw somewhere between a trillion and 13 trillion of tax payer money and credit guarantees at the financial sector. (See the excellent data compiled by Nomi Prins at here).

When you pour that much money into the financial sector, the odds are good that it might save it from total collapse. It may have done just that.

But the odds also are good that unless there are drastic reforms in place, the Wall Street giants that crashed our system in the first place are going to make bucketfuls of money, lobby against reforms, squiggle out of wage caps and get back to the very lucrative business of fantasy finance. Welcome to the world of Goldman Sachs, JP Morgan Chase and Morgan Stanley.

Let's be very, very clear. Those who actively promoted or passively accepted the ideology of deregulation and wealth distribution put the financiers in control of the economy and they've made one hell of a mess of it...after making hundreds of billions of dollars along the way. We then bailed them out with trillions of our money and now they are making record profits again, while nearly 25 million are unemployed and underemployed. And millions more are working for crap wages.

If the arc of the universe bends towards justice, we would start with a President's Wage Cap to tax away all Wall Street salaries above $400,000 a year and add on a windfall profits tax on all financial firms to pay for extended unemployment benefits until the unemployment rate falls below five percent.

Actually "tax" is the wrong word. We're talking reparations. When institutions, and the individuals who run them, harm the great mass of society and profit wildly along the way, they should make restitution for the harm they have caused.

Please, don't tell me about overpaid auto workers or about protecting the morale of bankers, or about the stifling of financial innovation. First tell me what we're going to do for those who were crushed by the crash, and to those who did the crushing so they can't do it again..