Neoliberalism and Its Discontents

All through the 1980s and 1990s, professorial mountebanks like James Q. Wilson and Charles Murray grew plump from best sellers about the criminal, probably innate, propensities of the “underclass,” about the pathology of poverty, the teen predators, the collapse of morals, the irresponsibility of teen moms.

There was indeed a vast criminal class coming to full vicious potential in the 1990s: a group utterly vacant of the most elementary instincts of social propriety, devoid of moral fiber, selfish to an almost unfathomable degree. This class appeared in the form of our corporate elite.

Given a green light in the late 1970s by the deregulatory binge urged by corporate-funded think tanks and launched legislatively by Jimmy Carter and Ted Kennedy, by the 1990s, America’s corporate leadership had evolved a simple strategy for criminal self-enrichment.

First, lie about your performance in a manner calculated to deceive investors. This was engineered by the production of a “pro forma” balance sheet freighted with accounting chicanery of every stripe and hue, willingly supplied by Arthur Andersen and others. Losses were labeled “capital expenditures”; losing assets were “sold” to co-conspirators in the large banks for the relevant accounting period.

Later, using Generally Accepted Accounting Principles, slightly more realistic balance sheets would be presented to the SEC and the IRS.

Flaunting the “pro forma” numbers, corporations would issue more stock, borrow more money from some co-conspiratorial bank, buy back the stock for the chief executives (who would further inflate its value by dint of bogus accountancy), sell the stock to the chumps and then finally bail out with their millions before the roof fell in, leaving pension funds like CalPERS holding the bag. The fortunes amassed by George W. Bush and Dick Cheney are vivid illustrations of this technique.

The scale of the looting? Prodigious. This orgy of thievery, without parallel in the history of capitalism, was condoned and abetted year after year by the archbishop of the economy, Alan Greenspan, a man with a finely-honed sense of distinction between the degree of reproof merited by the very rich and those less powerful. When Ron Carey led the Teamsters to victory way back in 1997, Greenspan rushed to denounce the “inflationary” potential of modestly improved wage packets. Even though declared innocent by a jury of his peers, Carey was forbidden ever to run in a union election again.  And so it goes now with the drumbeats about raising the minimum wage.

Where were the sermons from Greenspan or his successor Ben Bernanke about the inflationary potential of stock-option fortunes lofted on the hot air of crooked accountancy and other kindred conspiracies?

Let someone die in gang-banger crossfire in South Central and William Bennett will rush to indict an entire generation, an entire race. Where are the sermons from Bennett, Murray and the Sunday Show moralists about CEOs scuttling off with their swag, leaving their employees to founder amid wrecked pensions and destroyed prospects? A street kid in Oakland is in the computer by the time he’s 10. There are no “criminal propensity” profiles for grads of the Wharton or Harvard business schools.

You have to go back to Marx and Balzac to get a truly vivid sense of the rich as criminal elites. These giants bequeathed a tradition of joyful dissection of the morals and ethics of the rich, carried on by Veblen, John Moody, C. Wright Mills, William Domhoff, and others. But by the mid-1960s, disruptive political science was not a paying proposition if you aimed for tenure. A student studying Mills would be working nights at the soda fountain, while the kid flourishing Robert Dahl and writing rubbish about “pluralism” would get a grad fellowship.

Back in the 1950s, people were reading stuff about the moral vacuum in affluent suburbia by writers like Vance Packard and David Riesman. Presumably, inner loneliness soon became inner joy and there was nothing wrong with putting one’s boot on a colleague’s neck and cashing in. Where are the books now about these proving grounds for that great corporate criminal cohort of the 2000s which had come of age in the Reagan years?

In fact, it’s nearly impossible to locate books that examine the class of corporate executives through the lens of cool scientific contempt. Much of the current writing on CEO culture is published in magazines like Fortune, Businessweek or Forbes. And though there are a few authors — like Robert Monks (Power and Accountability) — who focus their attention on executive culture, nowhere will you find empirical studies on the sociobiological roots of the criminal tendencies of the executive class.

Why? The rich bought out the opposition. Back in the mists of antiquity, you had communists, socialists and populists who’d read Marx and who had a pretty fair notion of what the rich were up to. Even Democrats had a grasp of the true situation. Then came the witch-hunts and the buyouts, hand in hand. The result was that a Goldman Sachs trader could come to maturity without ever once hearing an admonitory word about it being wrong to lie, cheat and steal, sell out your co-workers and defraud your customers.

The finest schools in America had educated a criminal elite that stole the store in less than a decade. Was it all the fault of Ayn Rand, of the Chicago School, of Hollywood, of God’s demise?

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Hope walks arm in arm with fear and so naturally, in the midst of the 2008 financial crisis, liberal elitists like Barack Obama and Bill and Hillary Clinton admonished us, a la Roosevelt, that we have nothing to fear but fear itself and we must all pull together in the spirit of bipartisanship to bail out Wall Street. Wrong. We have many identifiable things to be frightened of, starting with a program designed to bail out the thieves running our financial system and then stick Middle America with a price-tag heftier than you can imagine. Why pull together with the licensed thug who just stole your money and then pledges to do it again to your kids?

When it comes to fingering the perpetrators, it is crucial to recall that the financial crisis is indeed truly bipartisan. What exploded in the late summer of 2008 was an economic credo that has been rolling along since the early 1970s: neoliberalism.

By all rights, this last crisis has brought us to the crossroads where neoliberalism should be buried with a stake through its heart. We’ve had thirty years’ worth of deregulation – the loosening of government supervision. This has been the neoliberal mantra preached by both major parties, the whole of the establishment press and almost every university economics department in the country. It is central to all the current disasters. And if you want to identify symbolic figures in the legislated career of deregulation, there are no more resplendent culprits than Phil Gramm and Robert Rubin.

Take Gramm first.

In 1999 Gramm, then a senator from Texas, was the prime Republican force pushing through the Gramm-Leach-Bliley Act. It repealed the old Glass-Steagall Act, passed during the Great Depression, which prohibited a commercial bank from being in the investment and insurance business. President Bill Clinton cheerfully signed it into law.

A year later Gramm, chairman of the Senate Banking Committee, attached a 262-page amendment to an omnibus appropriations bill, voted on by Congress right before a recess. The amendment received no scrutiny and duly became the Commodity Futures Modernization Act, which allowed deregulation of investment banks and exempted most over the counter derivatives, credit derivatives, credit defaults and swaps from regulatory scrutiny. Thus were born the scams that produced the debacle of Enron, which boasted Gramm’s wife Wendy as a member of its board. She had earlier served on the Commodity Futures Trading Commission from 1983 to 1993 and devised many of the rules coded into law by her husband in 2000.

Somewhat stained by the Enron debacle, Gramm quit the senate in 2002 and began to enjoy the fruits of his deregulatory efforts. He became a vice chairman of the giant Swiss bank UBS’ new investment arm in the US, and lobbied Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006. He urged Congress to roll back strong state rules designed to crimp the predatory tactics of the subprime mortgage industry. UBS took a bath of about $20 billion in write offs from bad real estate loans in 2006.

Long acknowledged as one of the most mean-spirited men ever to reach Congress, Gramm is a prime exhibit on any roster of the architects of the current economic mess. At the behest of the banking industry, he wrote the laws that enabled the huge balloons of funny money debt that exploded in 2008. The deregulatory statutes bearing his name prompted Wall Street’s looting orgy in subprime thievery.

But is he Exhibit A? No. That honor should surely go to Robert Rubin and to the economic course he set for his boss, the eagerly complicit Bill Clinton. Gramm has been the hireling of the banking industry. Rubin is at the beating heart of Wall Street finance, and he and Lawrence Summers were the guiding forces for financial deregulation at Clinton’s Treasury.

The Republicans hoped that the roof wouldn’t fall in on their watch, and that the crisis could be deferred to 2009 and then blamed on the Democrats. But their insurance policy was that if the roof did cave, as indeed it did, the rescue policy would be identical in either case. That’s why Obama collected more money than McCain from the big Wall Street houses.

The gang that successfully got out of Dodge in time was the Clinton-Rubin-Summers gang, just before the last bubble – the stock market bubble — burst in March of 2001. They knew what was coming.

For a full appraisal of the mechanics of the looting, it is useful to pull off the shelf Robert Pollin’s invaluable economic history of the Clinton years, Contours of Descent.

The second major component of Clinton administration policy in this area was supporting the successful repeal of the Depression-era Glass-Steagall framework of financial regulation through the 1999 Financial Services Modernization Act, otherwise known as Gramm-Leach-Bliley. Dismantlement of Glass-Steagall, de facto and de jure, had been long in the making. Innovative financial market players were easily circumventing this old regulatory apparatus, with its focus on creating firewalls between segments of the financial services industry, and preventing commercial banks from operating in more than one state. But the point is that an alternative to both Glass-Steagall and complete deregulation could have been devised, through some combination of policies such as taxing speculative financial transactions and establishing lower reserve requirements for loans that finance productive, as against speculative, investments. But the Clinton administration never considered such an approach. Quite the contrary. The 2001 Economic Report of the President, the last one written under Clinton, was unequivocal in dismissing Glass-Steagall and touting the virtues of financial deregulation:

‘Given the massive financial instability of the 1930s, narrowing the range of banks’ activities was arguably important for that day and age. But those rules are not needed today, and the easing of interstate banking rules, along with the passage of the Financial Services Modernization Act of 1999 have removed them, while maintaining appropriate safeguards. These steps allow consolidation in the financial sector that will result in efficiency gains and provide new services for consumers.’

Moreover, Robert Rubin, a major Clinton administration force behind Glass-Steagall repeal, was also among the first to benefit personally from it, in moving from his Treasury position to co-direct the newly merged investment/commercial banking conglomerate Citigroup. Under any reasonable interpretation of Glass-Steagall, the former commercial bank Citicorp and the former investment banking firm Travelers would not have been permitted to merge.

Amid the embers of the meltdown on Wall Street — one of the most devastating in the nation’s history — as Lehman went broke, as Merrill Lynch was swallowed up by Bank of America and AIG tottered to the Fed, begging bowl in hand — the orchestrators of the collapse insisted that “the fundamentals of our economy are strong.” The system requires blind obedience.

Over the past quarter century, the US manufacturing economy went offshore. Lately the so-called New Economy of the “Information Age” has been moving offshore too. Free trade has left millions without a decent job or the prospect of ever getting one above the $15 an hour tier.

Below a thin upper crust of the richest people in the history of the planet the rest of America, in varying degrees of desperation, can barely get by. Millions are so close to the edge that an extra 25 cents per gallon of fuel is a household budget-breaker.

Wages have stagnated. Decade after decade the bargaining power of workers has dwindled. We’ve seen the macabre spectacle of American-based workers ordered to train their overseas replacements before being fired.

Bipartisan ruses like the Clinton-inspired exclusion of energy and food costs from the measures of “core inflation” ensure that social security payments don’t keep up with real inflation, which – if you take in the soaring costs of groceries and fuel for heat and transport – is double the official rate. In the same way, real employment – now officially just above 6 per cent – is actually around 12 per cent.

The system is in dire trouble and nowhere is it more balefully manifest than in present and scheduled Pentagon spending, a figure barely mentioned in these days of crisis. Stick it to the imprudent homebuyers, not to the arms manufacturers and their gigantic pigsty, seeping its sewage across the planet.

But then, as the cranky German in the British Museum liked to point out, the capitalist system is always in crisis. Crisis is integral to the system. In too many ways, over the past twenty-five years, brooding on its own crises, the left has forgotten this. In the low contour of radical ideas and of radical political organization since the rise of the Clintons, we now suffer the consequences.

This is excerpted from An Orgy of Thieves: Neoliberalism and Its Discontents.