Saturday, July 16, 2011

Age of Greed -- and Deceit

When a friend of mine, Gerry Holmes, learned that I had bought a new book, “Age of Greed” by Jeff Madrick, he warned me that reading it could provoke a bad case of depression.

Actually, newspaper stories, especially the latest ones, have just about exhausted my capacity for depression. Madrick’s panoramic account – subtitled “The Triumph of
Finance and the Decline of America, 1970 to the Present” – lends itself more to outrage than depression.

Madrick rejects the notion that the age of greed and its recurring crises can be blamed on natural swings of the political pendulum or on an inevitable force of history. No, he insists; they were caused by human beings and their reactions to change, especially to troubling events. So he tracks the financial crises of the past 40 years largely through the words and actions of human beings – specifically, three dozen influential men.

Take, for example, Walter Wriston, son of a university professor who used his academic platform to preach against FDR and the New Deal. Disregarding his father’s advice to pursue an academic career, he joined New York’s National City Bank in 1946, when banking was far different from what it is today. Wriston changed that. A dedicated free market evangelist and vigorous opponent of government regulation, he built up a bank deemed too big for failure and thus dependent on government to save it. Citibank, its successor had to be rescued several more times.

Partly through his leadership, the whole financial industry – banks, brokers, and insurance companies, operating under much weakened government regulations –- became such a source of great personal wealth and power that eventually finance no longer played second fiddle to the great manufacturing, transportation, communications, and retail industries.

To my mind, of all the types of wrongdoings that Madrick chronicles, the worst was deception – lying – especially the systematic lying by the accounting industry, whose organizations sold the right to be called a profession. Wholesale deception enabled Wall Street firms, time after time, to misallocate fabulous amounts in bad or foolish investments.
The Supreme Court aided and abetted that vicious habit. Reversing 60 years of precedents, it ruled in 1994 that accountants, lawyers, and bankers could no longer be sued for participating in a fraud perpetrated by a client.

In his final paragraphs, Madrick writes:

“For all these endeavors, Wall Street professionals got fabulously rich. They channeled hundreds of billions of dollars into wasteful investments that could have been spent on energy, transportation, and communications infrastructure, health care and medical research, education, technical and business R&D, and new, truly innovative consumer products and business equipment. The question was not whether Wall Street bankers contributed enough to the economy to warrant their compensation, but how much they cost the economy in the damage done….

“Wall Street has continued to complain about how new regulations would undermine its profitability, and has threatened to leave those financial capitals that impose restrictions they deem damaging. America has not yet turned the page.”

To which I would add: This is the Wall Street that some respected persons would trust to “privatize” Social Security and Medicare.

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