A Word to the Wise

“Mind the gap,” warns a recent article in the Financial Times earlier this month. FT columnist John Plender offers substantial evidence that “income inequality in the U.S. is at its highest since that most doom-laden of years: 1929.” And, I would add, it doesn’t bode well for the image and reputation of retail and investment banks and hedge fund and private equity firms.

Here are just two of the gasp-inducing indicators Plender cites, which were the result of an analysis of Congressional Budget Office figures by Jared Bernstein of the Economic Policy Institute:

• Between 1979 and 2005, the pre-tax income for the poorest households grew by 1.3% annually and middle incomes grew by less than 1%, while the income of households in the top one percent grew by 200% pre-tax and — even more shockingly — by 228% post-tax.

• The result of this lopsided distribution of income growth was that, by 2005, the average after-tax income for the bottom fifth of households was $15,300; for the middle fifth $50,200; and for the top 1%, just over $1 million.

The subprime mortgage crisis and the collapse of the American housing market has left negative equity in its wake … also anger about a system that gives banking executives huge bonuses when the economy is booming, while taxpayers pick up the bill when banks fail.

This is certainly a public relations challenge, but it’s not just a PR challenge. It’s a fundamental operational issue that also needs to be addressed by the entire financial services industry — including banks, investment banking, hedge fund management and private equity firms and their professional associations — to avoid regulatory backlash … or worse.