Conghaileach
21st June 2002, 00:19
BAD FOR BUSINESS:
"How many times can you say 'unbelievable'?"
by William Greider
"How many times can you say 'unbelievable'?" my wife asked the other
morning, as I was rattling the newspaper and again exclaiming over
the latest outrageous news from American capitalism. Maybe it was the
story about the CEO of Tyco International, a very wealthy and much
admired titan, being indicted for evading the New York State sales
tax on his art purchases. Perhaps it was the disclosure that the
soaring market in energy trading, a jewel of the new economy, was
largely a fabrication built on phony round-trip trades. Or the
accusation that Perot Systems, after designing California's
deregulated energy-trading system, turned around and showed the
energy companies how to blow holes in it (and generate those soaring
electric bills for Californians).
It is unbelievable--what we've learned in the past six or eight
months about the financial system and corporate management. The
systematic deceit and imaginative greed--the sheer chintziness of
personal finagling for more loot--go well beyond the darkest hunches
harbored by resident skeptics like myself. Indeed, the Wall Street
system is now being flayed in the media almost daily by its own
leading tribunes. Listen to this summary of the scandals: "The
failures of Wall Street's compliance efforts are coming under intense
scrutiny--part of a growing awareness of how deeply flawed the US
financial markets really are. The watchdogs charged with keeping the
financial world honest have all lost credibility themselves: outside
auditors who bend the rules to please corporate clients, analysts who
shape stock recommendations to woo investment-banking customers and
government regulators too timid or overwhelmed to keep track of the
frenzy." You might have read those points in The Nation, but these
words appeared on the front page of the Wall Street Journal. A week
later, another page-one Journal story crisply explained the
implications for global investors: "Boasts about world-class
corporate disclosure, bookkeeping and regulation of American
financial markets have become laughable in the wake of Enron and
Arthur Andersen scandals."
When radical critique becomes mainstream observation, change may be
in the air. In my view, this is a rare historical moment--conditions
are ripe for reforming and reordering the system, an opportunity
unmatched since World War II. How things really work is on the table,
visible to all in shocking detail, authoritatively documented by the
torrent of disclosures, with more to come. The libertarian ideology
that colonized economic affairs and politics during the past two
decades (markets know best, government is an obstacle, greed is good)
has been pulled up short. The conservative orthodoxy is
vulnerable--actually breaking down--because it has no good
explanations for what we now understand to be routine malpractice in
business and finance. Political tinder is spread all around the
landscape, but who will strike the match?
The potential downside of this moment is also palpable and quite
ominous: Nothing will happen, nothing will change--nobody goes to
jail, no significant reforms are enacted. If so, the main result will
be confirmation of an already endemic public cynicism and the further
poisoning of American values. The revelations, instead of provoking a
sea change in political thinking, may be smothered by the alignments
of corporate-financial power, diverted into false reforms and
complexified to the point that media attention and public anger are
exhausted. In that event, the consequences for the country will be
less obvious but profoundly corrosive. The system would go forward in
roughly the same fashion (perhaps tarted up with public-relations
rouge), and everyone would understand that corruption is the system.
In markets and in the popular culture, the message would be: Forget
that crap about ethics--might as well take the low road, since that's
how the big boys get theirs.
The stakes are enormous, and it's much too early to predict the
outcome. But there's already abundant evidence that the business
establishment expects to ride out this storm and is working the usual
political levers to insure it. The politics resemble the S&L debacle
in the late 1980s, when Congressional Republocrats put out lots of
noise and smoke but left the high-priced suits unruffled and stuck
the public with the bill. Our current galaxy of scandals is far more
grave because it is systemic. Anyone with courage among the
Democratic presidential hopefuls could seize this moment and reorder
the agenda for 2004, but no one so far has found the guts to break
ranks with corporate power. Smoldering public anger, however, may yet
find a way to express itself, perhaps in the fall elections, and
rouse the reluctant politicians.
For now, the best hope seems to be that the bankers and business guys
will react to the fact that financial markets have been severely
damaged by the scandalous revelations, as have the high-flying moguls
of corporate America. Who can trust them? Who wants to pour more good
money after bad? In other words, this scandal stuff is bad for
business, especially bad for the faltering stock market. Henry
Paulson Jr., chair of Goldman Sachs, delivered that message recently
in a sober speech before the National Press Club and endorsed a
number of useful reforms. His remedies are insufficient (even the
Journal editorial page was happy to bless them) but are a fair start.
A chorus of high-minded anguish from elite circles might persuade
Washington that this problem does need fixing.
The scandals of Enron et al., unfortunately, must compete with
another story--the war on terrorism--that's more exciting, and
threatening, than dirty bookkeeping or the looted billions. The two
crises are intertwined in perverse ways. The smug triumphalism of
Bush's unilateralist war policy could be abruptly deflated by
economic events--which probably would be a good thing for world
affairs, since Washington couldn't run roughshod over others, but
terrible for US prosperity. The financial scandals have provided yet
another chilling reason to be wary of the US stock market, and if
overseas investors decide to take their money home in volume, the
already declining dollar will fall sharply. Credit would thus become
suddenly scarce, since our debtor-nation economy relies heavily on
capital borrowed from abroad, and such a convergence would trigger an
ugly downdraft in the US economy. In that event, the fashionable
boastfulness about America, the only superpower, would implode as
swiftly as Enron's stock price.
"How many times can you say 'unbelievable'?"
by William Greider
"How many times can you say 'unbelievable'?" my wife asked the other
morning, as I was rattling the newspaper and again exclaiming over
the latest outrageous news from American capitalism. Maybe it was the
story about the CEO of Tyco International, a very wealthy and much
admired titan, being indicted for evading the New York State sales
tax on his art purchases. Perhaps it was the disclosure that the
soaring market in energy trading, a jewel of the new economy, was
largely a fabrication built on phony round-trip trades. Or the
accusation that Perot Systems, after designing California's
deregulated energy-trading system, turned around and showed the
energy companies how to blow holes in it (and generate those soaring
electric bills for Californians).
It is unbelievable--what we've learned in the past six or eight
months about the financial system and corporate management. The
systematic deceit and imaginative greed--the sheer chintziness of
personal finagling for more loot--go well beyond the darkest hunches
harbored by resident skeptics like myself. Indeed, the Wall Street
system is now being flayed in the media almost daily by its own
leading tribunes. Listen to this summary of the scandals: "The
failures of Wall Street's compliance efforts are coming under intense
scrutiny--part of a growing awareness of how deeply flawed the US
financial markets really are. The watchdogs charged with keeping the
financial world honest have all lost credibility themselves: outside
auditors who bend the rules to please corporate clients, analysts who
shape stock recommendations to woo investment-banking customers and
government regulators too timid or overwhelmed to keep track of the
frenzy." You might have read those points in The Nation, but these
words appeared on the front page of the Wall Street Journal. A week
later, another page-one Journal story crisply explained the
implications for global investors: "Boasts about world-class
corporate disclosure, bookkeeping and regulation of American
financial markets have become laughable in the wake of Enron and
Arthur Andersen scandals."
When radical critique becomes mainstream observation, change may be
in the air. In my view, this is a rare historical moment--conditions
are ripe for reforming and reordering the system, an opportunity
unmatched since World War II. How things really work is on the table,
visible to all in shocking detail, authoritatively documented by the
torrent of disclosures, with more to come. The libertarian ideology
that colonized economic affairs and politics during the past two
decades (markets know best, government is an obstacle, greed is good)
has been pulled up short. The conservative orthodoxy is
vulnerable--actually breaking down--because it has no good
explanations for what we now understand to be routine malpractice in
business and finance. Political tinder is spread all around the
landscape, but who will strike the match?
The potential downside of this moment is also palpable and quite
ominous: Nothing will happen, nothing will change--nobody goes to
jail, no significant reforms are enacted. If so, the main result will
be confirmation of an already endemic public cynicism and the further
poisoning of American values. The revelations, instead of provoking a
sea change in political thinking, may be smothered by the alignments
of corporate-financial power, diverted into false reforms and
complexified to the point that media attention and public anger are
exhausted. In that event, the consequences for the country will be
less obvious but profoundly corrosive. The system would go forward in
roughly the same fashion (perhaps tarted up with public-relations
rouge), and everyone would understand that corruption is the system.
In markets and in the popular culture, the message would be: Forget
that crap about ethics--might as well take the low road, since that's
how the big boys get theirs.
The stakes are enormous, and it's much too early to predict the
outcome. But there's already abundant evidence that the business
establishment expects to ride out this storm and is working the usual
political levers to insure it. The politics resemble the S&L debacle
in the late 1980s, when Congressional Republocrats put out lots of
noise and smoke but left the high-priced suits unruffled and stuck
the public with the bill. Our current galaxy of scandals is far more
grave because it is systemic. Anyone with courage among the
Democratic presidential hopefuls could seize this moment and reorder
the agenda for 2004, but no one so far has found the guts to break
ranks with corporate power. Smoldering public anger, however, may yet
find a way to express itself, perhaps in the fall elections, and
rouse the reluctant politicians.
For now, the best hope seems to be that the bankers and business guys
will react to the fact that financial markets have been severely
damaged by the scandalous revelations, as have the high-flying moguls
of corporate America. Who can trust them? Who wants to pour more good
money after bad? In other words, this scandal stuff is bad for
business, especially bad for the faltering stock market. Henry
Paulson Jr., chair of Goldman Sachs, delivered that message recently
in a sober speech before the National Press Club and endorsed a
number of useful reforms. His remedies are insufficient (even the
Journal editorial page was happy to bless them) but are a fair start.
A chorus of high-minded anguish from elite circles might persuade
Washington that this problem does need fixing.
The scandals of Enron et al., unfortunately, must compete with
another story--the war on terrorism--that's more exciting, and
threatening, than dirty bookkeeping or the looted billions. The two
crises are intertwined in perverse ways. The smug triumphalism of
Bush's unilateralist war policy could be abruptly deflated by
economic events--which probably would be a good thing for world
affairs, since Washington couldn't run roughshod over others, but
terrible for US prosperity. The financial scandals have provided yet
another chilling reason to be wary of the US stock market, and if
overseas investors decide to take their money home in volume, the
already declining dollar will fall sharply. Credit would thus become
suddenly scarce, since our debtor-nation economy relies heavily on
capital borrowed from abroad, and such a convergence would trigger an
ugly downdraft in the US economy. In that event, the fashionable
boastfulness about America, the only superpower, would implode as
swiftly as Enron's stock price.