America, it seems, can't wait to get back to business -- risky business -- as usual. No matter how atrocious business has been.
Newsweek's latest cover story declares that The Great Recession is over. A Merrill Lynch report concurs, saying, "The recession is over...We are bullish on global equities." Goldman Sachs is placing riskier bets on the market than it did before the financial meltdown (and setting aside huge amounts of money to pay its executives).
The problem is, this victory dance is being done on top of the same shaky financial system that nearly toppled over, sending us all plummeting into the economic abyss. And while the market is over 9,100 (with another 10 percent gain predicted by the end of the year) and Goldman, Citi, and Bank of America are reporting multi-billion dollar profits, unemployment is heading to 10 percent, foreclosures continue at a rate of 10,000 a day, credit card defaults are hitting record highs, and states all across the country are cutting vital services to the bone.
We've seen this headlong rush to move on before. And it should be making us very afraid.
In 2003, I wrote a book called Pigs at the Trough detailing the corporate greed and malfeasance that brought us the financial scandals at Enron, WorldCom, Tyco, Global Crossing, and many others. Rereading it in the midst of the current crisis, I was stunned to see the direct line connecting the outrages of 2003 to the predicament we are facing today, and how they set the stage -- and opened the door -- for the much larger, more sophisticated, and much more dangerous excesses that drove the housing and financial collapse of the past year.
So when I was asked by my publisher to release an updated and expanded version of Pigs, I was delighted to do so. It comes out today.
Of course, when I originally wrote Pigs, I didn't know that in just six years America would find itself in the midst of a slew of fresh corporate outrages that would lead to a worldwide economic meltdown. But I can't say that I was surprised. The reason is simple: the system that allowed the scandals at Enron, Tyco, Global Crossing, et al. was never really reformed.
Yes, there were window-dressing changes, and Band-Aid legislation. But the guiding philosophy -- that the free market would regulate itself, and that Wall Street always knew best -- remained in place. Indeed, it was given a much freer rein.
So it's been déjà vu all over again. With one big difference that makes this current crisis so painful: the scale of it all. In 2003, the corporate crooks were largely playing with shareholders' money. The new batch of Pigs is playing with taxpayer money -- trillions of it. And if we don't reform the system, given the exponential worsening of things between 2003 and now, the next financial collapse will surely be more than we can withstand.
And how's this for an ironic connection: Bernie Madoff will serve his sentence in the same North Carolina prison where John Rigas and his son Tim have been since 2007. As you may recall, John, the founder of Adelphia Communications, and Tim, the company's Chief Financial Officer, were two of the many villains of the previous financial debacle -- and among the Pigs I profiled in my book. Politics makes for strange bedfellows and crime can make for strangely appropriate ones.
It's as if nothing has been learned since the last go-round. It's just that the numbers have gotten much larger -- and the risks to our well-being much greater.
Two days before Enron went bust, the company gave senior employees $55 million in bonuses while simultaneously coming out against any financial assistance for the 4,500 workers who had just been fired. There was outrage and recrimination. But we quickly moved on. And a little over seven years later found ourselves once again outraged, this time by AIG's plan to pay $165 million in bonuses to the same people who had driven the company to brink of collapse and the need for a $180 billion government bailout.
Similarly, in 2002, on the same day WorldCom stunned the world with the magnitude of its accounting fraud, the company's inner circle began an extravagant, all-expenses-paid vacation in Maui. There was outrage and recrimination. But we quickly moved on. And six years later were outraged by the $443,000 luxury spa retreat executives of AIG took just days after the government unveiled the first $85 billion of the taxpayer-funded bailout package for the insurance giant.
And the media share a big part of the responsibility. Back in 2003, just as the likes of Ken Lay, Jeff Skilling, Bernie Ebbers, Dennis Kozlowski, and John Rigas were being called on the carpet, the financial press was anointing a new set of corporate kings. Among them, future SEC target Angelo Mozilo, the former chairman and CEO of subprime mortgage dealer Countrywide. That year, Fortune lauded Countrywide for having "the best stock market performance of any financial services company in the Fortune 500" in over two decades.
As Connie Bruck reports in the New Yorker, in 2005 Countrywide was named one of Fortune's "Most Admired Companies" and Barron's anointed Mozilo one of the best CEOs in the world. The next year, American Banker gave him its lifetime-achievement award. The year after that, the subprime mess began to hit the fan.
And instead of holding the Horsemen of the Financial Apocalypse who are still in charge accountable, those in the financial media are ready to move on, searching for the next superstar cover boys.
With so many both on Wall Street and in the media tripping over themselves to return to the pre-meltdown status quo, it's easy to get blinded by the premature exuberance and hop on the green shoots bandwagon. But we must resist and demand fundamental reform. We cannot allow Wall Street and its lobbyists -- as I warn in Pigs at the Trough -- "to embrace reform while working diligently behind the scenes to undermine it."
If we are going to truly rebuild our free market capitalist system, we have to break the cycle of shock, followed by outrage, followed by a few high-profile show trials, followed by the punishment of a few culprits, followed by some meaningless reforms... and then we all move on. Until it starts again.
The question is, does the political will to create and implement new rules for Wall Street exist, or will the result be a series of tough-sounding-but-ultimately-toothless reform measures that allow the cancer of greed and corruption that has infected our political and financial systems to spread and become even more destructive?
Does our body politic have the strength to save itself?