People working in the financial sector got paid better than any other professional class…

…which didn't seem so bad, says Floyd Norris in the New York Times, when they appeared to be the smartest people on the planet.

But now that we've discovered that they were the world's biggest dumbbells the high salaries add insult to injury.

In the Bubble Epoque, every mamma wanted her baby to grow up and be an investment banker. Because that's where the money was. Now…the money ain't there no more.

The banks are broke. And the people who work in the financial sector are taking big pay cuts. First, their bonuses - which depend on the profitability of the industry - are cut automatically. Then, their salaries will come down too.

Financial sector salaries rise with the credit cycle, says a study done by the National Bureau of Economic Research.

"Wages in finance were excessively high around 1930 and from the mid-1990s until 2006," says the report.

When animal spirits run high, in other words, the financial industry is able to make a buck. When they run low, earnings and wages in the sector fall. And when earnings in the financial industry go down, so do the economies that depend on them.

It was not a coincidence that New York City went broke in the '70s, says the report. Speculators were few, credit was low, and the financial industry was in a slump. Coming soon: lower property prices in Manhattan and London.

Mommas should now be urging their babies to go into other lines of work - politics, maybe. The whole financial sector is busted. And if the financial sector is broke, the rest of the economy can't function - at least, that's the argument. So, the politicians and economists are desperately looking for solutions. What solution do they find? Shift more power and money to…surprise…politicians! The bankers may be broke, but the politicians act as though money is no problem. "How much do you need," they ask?

"Don't insure the banks - nationalize," writes James Saft in the International Herald Tribune. He believes nationalization - complete government takeover - is the cheapest and most efficient way to bring the banks back to life.

Just a few months ago, 'nationalization' was practically a dirty word. No one - except a brain-dead Bolshevik - would have thought it desirable for a government bureaucracy to manage capitalism's money. Now, few people can think of anything better.

The idea is typically simple-minded. When the bankers saw high earnings and no risk, the last thing they wanted was interference. Like gangsters, they would fight to keep rivals from muscling into their territory. But now, the wages of sin are going down…and the risks seem too high. They're facing bankruptcy and they're discouraged.

Everyone wants to offload the risks of the financial sector onto the taxpayer.

But wait…how can capitalism work without capitalists running its most important industry? And of course, there's the additional cost. In private hands, the financial sector allocates capital and takes risks. The bankers make mistakes…but are least their intentions are pure; they are motivated by greed. In the fat hands of the government, on the other hand, decisions will be more political - they will be made to appease pressure groups, to favor trendy causes, to pay-off supporters or punish opponents. From an economic standpoint, these will slow down real growth…and cause strange misallocations of capital and financial distortions. Instead of being driven by naked, honest greed, in other words…the economy will be whipped forward by corruption, favoritism, and hidden political agendas.

Here at The Daily Reckoning, however, we are squarely against nationalizing the banks. Not that we think bureaucrats won't do as good a job; how could they do worse? We just don't think they'll be as much fun to watch.

*** "Obama says renminbi 'manipulated'" says the headline in the Financial Times.

Practically the first thing we hear from the Obama administration is worrying. The world is at the beginning of a major downturn. The last thing it needs is a Mr. Smoot in the White House.

*** "It's a disaster," said a friend last night. Our friend is a major property developer in Europe.

"You don't develop large projects with pocket money," he explained. "You need deep pockets. So you turn to the big banks. But now, not even Warren Buffett could get a loan for a development project. I spend my entire day arguing with bankers. They've promised lines of credit. They've made commitments. They were backing these projects. And now, they're pulling out. They use any excuse they can to get out of their obligations…forcing many development projects into bankruptcy.

"In one project, we actually improved the plans…so the houses were finished at lower cost…and were a better product. But the bank cancelled our financing because they said we had changed the plans without approval.

"In France, right now, there is actually a shortage of housing. That's why, house prices in France aren't falling the way they are in the rest of the world. There aren't enough houses to go around.

"Even so, we had to stop projects all over the country…because we can't get the money to complete them.

"And we had one project in the South of France where we had about 100 units left to sell…all completed. So, I told buyers that I would give them a check for 40,000 euros if they'd buy one of these apartments…selling for about 300,000 euros. It was a great deal. And people knew it was a great deal. In about a week I had 50 signed contracts. But of those 50, guess how many were able to complete? Guess how many were able to get the financing they needed to buy the apartments? Three…just three. The rest lost their deposits.

"It's a nightmare…I wish I had retired six months ago."

*** Mad Magazine has come out with what we believe will be the final word on the Obama plan to restart the economy. Its cover has a picture of a fellow who looks like a cross between Obama and its trademark mischief-maker, Alfred E. Neuman. He's holding a campaign sticker: "Yes We Can't," it says.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.