The Predator Class and the Predator State
Posted by AzBlueMeanie:
Two economics essays from the past decade are worth reviewing again with a look backwards from where we have come for lessons learned, and a look forward to where we want to go drawing upon those lessons.
The first essay is from 2003 by Dick Meyer, who writes the Against the Grain commentary for CBS News. The Predator Class:
The stock market boom of the 1990s, the proliferation of 401(k) plans and the mass use of mutual funds so greatly increased the number of Americans who own equities that a new demographic term was born: the investor class.
The emerging accounts of thievery in the world of mutual funds confirm, for me at least, something I have suspected since the go-go 1980s — the existence of an economic predator class.
I believe there is now a professional, well-trained elite, supported by large institutions, that is adept and willing to use corrupt practices to accumulate wealth. Despite assurances from game-theorists and anthropologists that the criminal cadre in the species remains a constant percentage over time, I believe today's mainstream, sanitized, and institutionally sanctioned financial crime rackets are being run by a new breed of crook. There have always been scandals and crooks in the history of American money, but our predator class is a distinct creation of the late 20th century.
I believe there is no way the counter-class made up of regulators, watchdogs and do-gooders and hack columnists can match wits with the predator class. Today's piles of money are so huge, great fortunes can be amassed by swiping the tiniest of slices in the wiliest of ways long before picked pockets are discovered.
I also believe that my darling baby-boom generation and our successors in gens x and y, reared in raised consciousness, righteousness and me-first, are probably to blame.
The docket of this still running corporate crime spree has grown far too long to be dismissed as either a passing fluke, a few bad eggs or as regularly scheduled financial event. It is a more permanent condition of commercial culture. And it is barely scorned.
It is partly, of course, simple Wall Street and boardroom greed, a cousin to the greed and gargantuan rewards in entertainment and sports. It is partly the degradation of professional standards, of the concept of the fiduciary, akin to the same market-driven devolution in divergent fields such as medical care, Hollywood, publishing and, yes, journalism.
My guess is that financial historians will start the clock in this epoch with the big merger scandals of the 1980's — Ivan Boesky, Michael Milken and scads of lesser cads. Next came the long running, now forgotten, S&L scandals. Then a lull (maybe), punctuated by the pretty picture of the tech boom. That delusional portrait was been redrawn when we learned of the rigged IPO's, insider trading, completely corrupt "analysis" practices at the Wall Street giants and old-fashioned flimflam.
Coveting the vast instant riches of the techno-boomers and baby billionaires was way more than many titans of less glamorous industries could bear and in virtually all companies executive salaries soared beyond all proportions of the post-war era. And in many of those executive suites, greed morphed into felony — Tyco, Enron, Rite-Aid, Adelphia, Global Crossing, WorldCom, ImClone, Lucent, KMart, MicroStrategy, Qwest Communications. And then scandals at the supposed auditors, like Arthur Andersen, insulted the injury.
As the market turned down, the corporate crime spree didn't wane as some theorists said it should. Hot stocks, IPO's, M&A were no longer where the Willy Suttons with MBAs, Turnbull & Asser shirts and Patek Philipe watches saw the money. They saw it in those huge piles of money accumulated by working people for savings and retirement — corporate pension funds, public pension funds, 401(k)'s and mutual funds. Who would notice a few mil or bil siphoned off in arcane late-trading deals? They'll never know what hit them.
So, pension funds were raided, an entirely legal scandal. And now we're learning about the mutual fund grifting rampage that may affect Main Street as much as prior fiascos: Putnam, Alger Management, Bank of America, Morgan Stanley, Strong Capital Management, PBHG Funds, Bank One Corp., Alliance Capital, Janus Capital Group are some of the implicated names.
So now we'll be told that the market, smarter than any deliberately organized system, will correct this. After all, who would invest in a known corrupt game? No one, so the market will make fix it. Plus, the regulators are on the case.
This time, I don't buy it. The predator class will not be exterminated by cease and desist orders, Senate hearings, independent boards of directors and the invisible hand. It's a culture. And essentially, it's our culture.
Meyer was writing about the first series of Wall Street investment "bubbles" before the sub-prime mortgage real estate bubble began to burst in 2006 and nearly destroyed the world's economy by September 2008.
The second essay is from 2006 is by economist James K Galbraith. The Predator State | Mother Jones:
WHAT IS THE REAL NATURE of American capitalism today? Is it a grand national adventure, as politicians and textbooks aver, in which markets provide the framework for benign competition, from which emerges the greatest good for the greatest number? Or is it the domain of class struggle, even a “global class war,” as the title of Jeff Faux’s new book would have it, in which the “party of Davos” outmaneuvers the remnants of the organized working class?
The doctrines of the “law and economics” movement, now ascendant in our courts, hold that if people are rational, if markets can be “contested,” if memory is good and information adequate, then firms will adhere on their own to norms of honorable conduct. Any public presence in the economy undermines this. Even insurance—whether deposit insurance or Social Security—is perverse, for it encourages irresponsible risk taking. Banks will lend to bad clients, workers will “live for today,” companies will speculate with their pension funds; the movement has even argued that seat belts foster reckless driving. Insurance, in other words, creates a “moral hazard” for which “market discipline” is the cure; all works for the best when thought and planning do not interfere. It’s a strange vision, and if we weren’t governed by people like John Roberts and Sam Alito, who pretend to believe it, it would scarcely be worth our attention.
* * *
McCain throws down the birther gauntlet
GOP Economics 101: The rich get richer and you pay for it
Puny G.I. response to AEA’s Wright shows G.I. playing defense
The dysfunctional U.S. Senate and the Grand Obstructionist Party
The LD 28 Candidate Forum – Senate Candidates
