“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.