As I See It: What Might Have Been

When the value of your dollars is shrinking because of inflation, and your savings are shrinking because of recession, it is neither inappropriate nor self-indulgent to wonder what might have been. The problem is, it’s hard to prove a negative. You know how much money you have, but it’s harder to estimate how much you’ve lost over the years due to such things as bad fiscal policy, market manipulation, theft and fraud, or reckless deregulation, all of which invite larceny and price gouging.

A great many things that are beyond your control affect how much money you have in your pocket, as well as the amount of your salary and the growth of your investments. Topping the list is government action and inaction. Monetary policy, regulation or the lack of it, failure to enforce existing laws, refusal to aggressively prosecute theft and fraud, deficit spending, subsidies and pork, tax policy, unemployment policy, and a hundred other federal and regulatory agency decisions influence everything from the cost and availability of money, to the price of goods, corporate behavior, and the rate of economic growth. All of which affect your cost of living and determine the amount of discretionary income available to you.

It’s hard to imagine how much you could have had if things had gone differently, but the amount would be substantial. This much we know: Major financial scandals are the true face of trickle-down economics. The bill for malfeasance that originates at the top always trickles down to the bottom for payment.

The list of scandals is long but worth remembering, if only because we are so easily distracted. Large financial scandals often seem to have little to do with us. Sure, our mutual funds tanked, but what can we do about it? We get weary, feel helpless, overwhelmed. It’s easier to wonder what happened to Michael Jackson’s nose than to fathom the Machiavellian complexities of today’s economic shenanigans, much less do anything about them. Accumulative scandals are numbing. Every now and then, the media tells us that the scandal du jour has left a lot of people poorer. Then revelations of wrongdoing force congressional committee hearings where there is great outrage but little action. Two years after Enron, Ken Lay has yet to see the inside of a jail cell, and we all know he never will.

But peer through the mists of avarice and a pattern emerges. The 1980s gave us the likes of Dennis Levine, Michael Milken, Martin Siegel, and Ivan Boesky: the “greed is good” bunch. Milken the Junk Bond King, who financed mergers and hostile takeovers with high yield debt, then raided and destroyed profitable companies in order to pay off the bonds. Boesky, the consummate insider, ripping off small investors. Companies pillaged, people out of work, institutions that invested in junk bonds grappling with insolvency; Milken alone was indicted for insider trading and 98 counts of racketeering. The charges were reduced to securities fraud, and he served two years of a 10-year sentence. A desperate man holding up a liquor store would receive stiffer punishment. The prosecuting attorney for Milken, incidentally, was Rudolph Guliani, former mayor of New York City.

Next came the savings and loan scandal. That one cost taxpayers a tidy half of a trillion dollars, or about $1,667 for every man, woman, and child in the nation. Don’t know about you, but I could have used that money.

Then we enjoyed a boom, which we now know was, in part, a creation of fraudulent stock analysis and rigged IPOs. There was so much money being drained out of the economy, at so little risk to the drainers, that fraud quickly graduated to felony. One by one, marquee corporations were exposed as shams and swindlers. Enron, Global Crossing, WorldCom, Qwest, Tyco, Adelphia, Lucent, K-Mart, and all the rest. Investors lost billions. Some employees lost everything. Californians alone were fleeced out of $30 billion dollars in the bogus energy crisis, a cost of about $3,000 for every person in the state.

And what of the institutions whose job it was to safeguard the rest of us? They were in cahoots. Auditors winked and signed off on fictitious financial statements, while regulatory agencies like the Securities and Exchange Commision were being run by corporate lackeys who were hostile to any and all regulations. Look carefully at the management of regulatory agencies, and you will see lobbyists and professional looters, whose interests and actions are antithetical to the purpose of the agency they serve. The inmates now own the asylum and are doing away with any rules that challenge inmate behavior.

Next, the attention of the looters shifted to the almost unimaginable amounts of money sitting in pension funds and 401(k)s. Pension funds were stripped, and many companies decided to either reduce retirement benefits or eliminate them entirely. About half of working Americans have no pension at all, and the programs that cover the other half are underfunded by some $200 billion.

The latest looting orgy is concentrated on the mountains of money invested in mutual funds. Skimming, illegal trading, hedge-fund managers rigging funds; some are predicting that when this one unravels it will rival the biggest scandals of recent decades. And it’s not very reassuring that many of the nation’s most respected financial institutions are implicated, including Bank of America, Morgan Stanley, Bank One, and Janus Capital Group. The looters have discovered the truth of Bertolt Brecht’s dictum: “It is easier to rob by setting up a bank than by holding up a bank clerk.”

Dick Meyer, editorial director of CBSNews.com, summarizes the state of our financial union thus: “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.” He calls them the predator class, and he is pessimistic about our ability to stop the looting. “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,” says Meyer. “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.”

The solution offered by those profiting from the status quo is universally predictable: less regulatory oversight, allow the hidden hand of the market to assert itself. Except, as we have seen over the past 25 years, the hidden hand is much more likely to give investors the finger than to enact reform.

Even if we assume that the invisible hand of the market may eventually correct imbalances, that’s precisely the problem: It corrects; it does not prevent. And predators clearly understand that by the time the old invisible hand begins making its celebrated corrections, millions of people can be fleeced out of trillions of dollars. Prevention is the purview of regulation, which, like much else that is useful about government, is being dismantled at an alarming rate, for reasons of ideology that are clearly in conflict with reality.

The bottom line, which the predator class is fond of citing, is that the market is able to self-correct when abuses are incidental, not institutionalized. The predators fear regulation, not because it stifles business opportunity but because it sets limits on behavior.

It is unarguable that each of the great financial scandals in the last 25 years has had an effect on your income, your investments, and the state of the economy. Everything is related and intertwined. When three million jobs are lost, as they have been since January of 2001, the people out of work buy fewer goods, take fewer trips, and lack discretionary income. Those who commonly provide them with goods and services also suffer.

Such schemes as transfer pricing, shell subsidiaries, and offshore tax shelters allow corporations to pay 30 percent less tax than they did 20 years ago. And that raises your tax liability. As do the routine overcharges on military contracts such as Halliburton’s recent attempt to fleece taxpayers of an additional $61 million. Deficit spending, which forces the government to compete with the private sector for borrowed money, will drive up interest rates. And a one point increase in the interest rate on your mortgage equates to many thousands of dollars of interest payments over the life of the loan. A pension looted today will yield a fraction of what it should have yielded. Everything is connected. We all live downstream from the predator class, and much of what comes down river these days is designed to scour what little is left to the middle class.

We can never fully calculate the damage done to the nation over the past two decades by the predator class. But the amount lost can be measured in the trillions. The opportunities lost cannot be assessed. An economic system founded on the noble principle of exchange of value for equal value has devolved to a shark tank where flourishing predation is seen as the ultimate entitlement.

Do you have any savings, or do you live month to month? How about a retirement fund? Anything left in that? Is there college money for the kids? Are you taking fewer vacations, driving an older car? Do you carry more debt than is wise? What might you have had if none of these scandals had taken place? Perhaps the real invisible hand belongs to the financial puppeteers.

“We are now watching the looting of the entire country,” Molly Ivans wrote in a recent column. “I do not think it premature to conclude that the entire financial industry of this country is riddled with fraud.” Perhaps that would help explain this startling statistic: While the GDP grew by 42 percent over the last 20 years, the bottom 80 percent of American households saw their incomes increase by only 9 percent.

It has always amazed me that there are so many people willing to make their living at the expense and misery of others. Samuel Butler observed, “There are more fools than knaves in the world, else the knaves would not have enough to live upon.”

Maybe so. But when the consequences arrive, as they invariably do, there is nothing quite so unpredictable as a nation of enraged fools.