The Magazine

The Real Decade of Greed

Psst . . . it wasn't the 1980s.

Jul 15, 2002, Vol. 7, No. 42 • By JAMES HIGGINS
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"The 1980s were not just a decade of greed and self-seeking, they were a decade of denial and blame. George Bush is happy to tell Israel what to do. Why won't he tell Wall Street what to do?"

--Bill Clinton, September 22, 1991

NOT EVEN BILL CLINTON'S harshest critics could have foreseen what the headlines would look like a decade after he campaigned on that statement and after eight years of his leadership in the White House. Enron. WorldCom. Arthur Andersen. Xerox. ImClone. Tyco. Merrill Lynch. Credit Suisse First Boston. How did it all happen? The Wall Street Journal news pages intone that "a stock market bubble magnified changes in business mores and brought trends that had been building for years to a climax." That analysis contains a measure of truth, but it misses the larger forces that permitted undesirable trends to go unchecked until they burst. Today's news is different from the financial scandals of the 1980s not just in magnitude but in kind.

The corruptions of the 1980s were chiefly offenses by a few rogues in the system. Individual acts of wrongdoing stood out on the horizon and were punished. Already the names of the malefactors have mostly faded from public consciousness: Ivan Boesky, Martin Siegel, Dennis Levine, the "Yuppie Five."

The corruptions of the 1990s were corruptions of the system itself. Some of them relied on the non-existence of white collar law enforcement. Some relied on changing the rules to make wrong right. Most were hidden in plain sight. Offenders in the 1980s lurked on corners. Boesky literally repaired to an alley to pass Siegel a briefcase of cash in exchange for inside information. Their 1990s counterparts operated in the proverbial corner offices rather than on street corners.

True, there were scandals in the 1980s involving large institutions and large sums, notably the savings and loan crisis. But that crisis grew out of boneheaded public policy: extreme liberalization of deposit insurance and instant, massive changes in the depreciation rules. The corruption was on the periphery. Not so, it is now apparent, of the more recent class of malefactors.

One hint of what was wrong in the 1990s was the pervasiveness of shady practices and how long they persisted.

Consider the corruption of the initial public offering (IPO) process--which in theory is about allowing promising young companies with a track record of growth to begin tapping the public stock markets for their capital needs. In the 1990s, this became a get-rich-quick scheme for investment banks--who marketed wildly overpriced shares of infant companies that were barely more than concepts--the venture capitalists who owned these companies, and the insiders and their friends who were allocated shares at artificially low prices before trading opened. This game went on far longer and got much further out of hand than one would expect in an allegedly regulated market. The principals in a very reputable investment management firm told me of their dismay and disgust as they found their IPO allocations reduced and then eliminated altogether when they balked at ever more explicit demands for kickbacks in the form of excessive commissions on other trades. "We kept asking ourselves," they told me, "'Where are the regulators?'" Where, indeed?

The regulators came only after and because the party ended. It wasn't until December 2001, nearly two years after the peak in the equity markets and with a new administration in office, that the SEC and the National Association of Securities Dealers (NASD) finally secured a $100 million penalty from Credit Suisse First Boston, whose IPO guru Frank Quattrone was widely believed to be the most flagrant corrupter of the process.

In the avalanche of news following the Enron collapse, the repeated calls that Enron made to the White House and Treasury Department pleading for a bailout were widely reported. Notwithstanding many Democratic insinuations that the Bush White House was a wholly owned subsidiary of "Kenny Boy" Lay's Enron, the Bush administration turned Enron down flat.

Less attention has been paid to the call that Robert Rubin made to Peter Fisher, the Treasury undersecretary who is the administration's point man on financial markets. And almost no attention has been given to the content of that call. While the call was not a crime or even a civil offense, it was in an important way the most telling event in all the recent financial fiascoes.

Rubin, secretary of the Treasury from 1995 to 1999, is no longer in government. He is a director of the Citigroup financial conglomerate. Rubin is the ne plus ultra of eminent Clintonians. Indeed, after Alan Greenspan, he is the most respected figure in international financial markets.