Excellent find; I especially liked the following:
Among the 1920's corporate malfeasance was National City Bank Chairman Charles Mitchell, short selling his own bank's stock,
J.P. Morgan partner Richard Whitney embezzling
stock exchange funds, Match King Ivar Kreuger swindling investors multinationally (the 1920's Enron) and the Shenandoah
Corporation and Goldman Sachs Investment Trust
building pyramids of holding companies and collecting management fees from each. Equally unprecedented was the reaction of
jurists after 1932, in jailing Whitney, Mitchell and other
financiers, and of politicians in running for office for a decade and a half through demonizing Wall Street. Harvard's business
historian Richard Tedlow, quoted in the Wall Street
Journal Tuesday, believes the ethical cloud in 1929 was the worst in U.S. history. The political reaction to it was also
unprecedented in its lack of inhibition, causing immense economic
damage, both in the U.S. and internationally -- and bringing military as well as economic catastrophe in its wake.
At least the first part of this saga appears to have repeated itself in the 1990s. Previous standards of executive remuneration
were swept aside by the mania for stock options, and
the refusal to book them properly in company income statements. Previous standards of stock valuation were swept aside in
the dot-com mania, where companies that were far from
even the prospect of showing a profit were able to raise billions. Previous standards of Wall Street analysis were swept aside
by Mary Meeker, Henry Blodget and their cohorts, using
their privileged positions as Wall Street analysts, not to provide investors with information, but to pump up the ever-escalating
bubble. In political life, previous standards of veracity
(even that of Richard Nixon) were swept aside by a president who refused to define the word "is." And of course, as Enron
showed, previous standards of conflict of interest
avoidance were ignored by the Enron executives who benefited from the special purpose companies, and previous standards of
audit behavior were trashed along with Enron
documentation by the Andersen accountants even as lawsuits loomed.
The result was a gigantic stock market bubble, which swept aside not only recent standards of valuation but even those of the
late 1920's, regarded by all observers until about 1995
as an aberrant peak never again to be approached.
What we don't know of course is where we go from here. Strauss and Howe postulate a global crisis occurring about
2010-2020, which will provide the annealing fire from which the
civic virtues of the currently infant "Millennial" generation will be formed (while making the lives of the rest of us very much
more unpleasant.) In their view, however, the crisis will be
extraneous -- the world will simply find itself in war or economic catastrophe, which will not be anyone's fault.
The history of the 1990s, particularly of the late 1990s, and comparison with earlier crises, strongly suggests that a causal link
is at work. If the malfeasance of the idealist generation
produces a valuation bubble, the crash of which produces an economic depression (and make no mistake, we are here talking
about the d-word, not the r-word) then the beginning
of the crisis may already be upon us. Moreover, just as the valuation bubble of the 1990s appears to have been larger than in
1929, so the economic undertow from its bursting may
be correspondingly more damaging.
HERE'S WHERE WE CAN ACTUALLY LEARN SOMETHING IF WE COLLECTIVELY RECOGNIZE THE DISEASE:
If this is the case, then the road ahead, to avoid an economic/military crisis which however character-building will certainly be
enormously painful, is a difficult one. The reaction to
economic hardship, if it occurs, must differ from that of the 1930s. In particular, we must not revert to protectionism (which
impoverishes other countries) must not carry out a legal
and political assault on business (which impoverishes at home and abroad) and must not allow the international financial flows
to dry up. In foreign policy, we must be vigilant to block
the rise of powerful enemies, while at the same time helping countries in difficulties and ensuring that the world trading system
remains open and active.
Above all, we must guard against the metastisizing of government, so popular among idealists grown impatient with age...
BC |
