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Masters of the universe but not of their own destiny

They used to be the masters of the universe. Now they are not even masters of their own destiny.

These are the titans of Wall Street, the bank chief executives who wielded trillions of dollars of borrowed money and decided whether currencies, commodities and even countries rose and fell – and whose own pockets bulged with hundreds of millions of dollars in annual bonuses.

Now they are reduced to the status of local branch managers, summoned to the headquarters of the Federal Bailout Bank for a dressing down, some bad news about next year's pay and a tricky budget meeting.

On Monday, they trooped in to the US Treasury Department to be told the federal government was going to be taking a big stake in their companies, whether they liked it or not. Yesterday, with the formal announcement of the most extensive US government interference in the free market perhaps in history, they awoke to a humiliating new world. It is a world that has repudiated their quick-buck business practices and their view of red-in-tooth-and-claw capitalism, a repudiation that came not because of any moral epiphany but because it has been shown to be way too dangerous to the prosperity of all of us.

All the members of the club were there. At the helm, the Treasury Secretary Henry Paulson, who has only been in politics since 2006 after being lured from his $35m-a-year job at Goldman Sachs. Across the table, two of his former Goldman deputies, his successor Lloyd Blankfein and John Thain, now running Merrill Lynch. John Mack, of Morgan Stanley; Jamie Dimon, of JPMorgan Chase, and Vikram Pandit, of Citigroup were also in attendance.

The American people have learnt a lot about the Wall Street executive lifestyle as the crisis has unfolded – the helicopter rides to the golf course taken even while billions of dollars were being wiped out; the multi-million-dollar "golden parachute" cheques written as the pilot ejects from his doomed company.

Dick Fuld, the Lehman Brothers chief executive, hauled before Congress last month, could count up how much money he had taken out of the company during his time at the helm. He disagreed with $500m (£290m), thought $350m might be more like it. With income inequality at its most extreme since before the Great Crash of 1929, it is perhaps unsurprising that the general population has fixed "Wall Street" and "greed" together in the lexicon.

And as with all elite clubs, there comes an easy sense of superiority. When these titans descended on Washington in the past it was to place an order from the trusty menu of free-market dishes. Less regulation for starters. Lower taxes. Help to prise open foreign markets. Second helpings of less regulation.

What is remarkable is how quickly their ideological framework has collapsed. At each stage, there has been a reluctance to use government as a solution to the banking crisis until events dictated it must be. Just three weeks ago, Mr Paulson was rejecting the notion that the government should take control of the banks. His plan to use $700bn of taxpayer money to buy up toxic mortgage assets was finicky precisely because it tried to orchestrate a quasi-market solution. Only the whirlwind of nationalisations begun by Gordon Brown has forced the U-turn that finally humiliated Wall Street.

One of the most oft-quoted chairmen of the Federal Reserve is William McChesney Martin, who served during the Fifties and Sixties. He said his job was "to take away the punch bowl just as the party gets going". With laissez-faire governments on the decks and a McChesney Martin successor, Alan Greenspan, behind the bar dispensing interest rate cuts in shot glasses, no one took the bowl away this time.

George Bush described the scene this year by saying "Wall Street got drunk and now it's got a hangover", but we are not even at the hangover stage. This is only the staggering into the street and passing out in a cab stage. Don't expect these former masters of the universe to wake up with their dignity intact.