Economics professor Robert Pollin of the University of Massachusetts at Amherst
sees it like this: The fraud and accounting scandals are not the cause
of the economic trouble the country is in now, but rather a consequence of it.
"No one seemed to care about loose accounting practices as long as the stock
market was going up. Only when investors realized that stock prices were not going
to continue to go up, and they had to rely on earnings, did it become apparent
that the earnings were simply not there," Pollin points out.
One of the major factors that helped inflate what is now a burst bubble, he
says, was the deregulation of financial markets.
Pollin's argument is further buttressed by a front-page article in last Friday's
Wall Street Journal about "Citigroup's vast reach," bringing it "trouble from
many quarters."
Citigroup, America's largest financial-services company, is facing an investigation
by federal and New York state prosecutors, and is the subject of a civil investigation
by the Securities and Exchange Commission.
The company also is facing a slew of lawsuits. All because of its ties to Enron.
Whether Citigroup will ultimately be cleared of all wrongdoing is anybody's guess.
What's clear is that, even as Citigroup "continues to generate huge profits, its
reputation is increasingly at risk because of its association with high-profile
corporate scandals," the Journal reports.
Last week, Citigroup shares fell 18 percent. The vulnerability of its reputation,
the Journal goes on to say, can be traced to its Chief Executive Sandford Weill's
"much-celebrated strategy of building a global financial conglomerate. The sheer
size of his creation means that in an era of market turbulence and alleged corporate
wrongdoing, Citigroup finds controversy enveloping many of its units."
How did we get here and who's to blame? Democrats are hoping to exploit the
widespread perception that the Republican faithful are too closely tied to big
business at a time when there is a huge "corporate credibility gap." Meanwhile,
GOP spin doctors are working overtime to frame all this corporate scandal stuff
as an individual ethics problem that reached an all-time low in what Greenspan
has termed the infectiously greedy decade of the 90s -- an era symbolized by the
ethically challenged "Slick Willie" Clinton.
In reality, neither party can claim the moral high ground on this issue.
In November 1999, a Republican-controlled Congress passed the Gramm-Leach-Bliley
Act. It was signed into law by the New Democrat President Clinton. The act didn't
completely undo the securities laws established in the early 1930s in the wake
of the infamous stock market crash of 1929.
But, according to the non-profit research institute, the Financial Markets
Center, the act did "complete a 20-year project to overturn the public-purpose
ethos of financial lawmaking from the New Deal to the 1970s" by repealing the
Glass-Steagall Act's legal barriers separating the ownership of banking, insurance
and securities -- a deregulation effort presided over by Clinton's Treasury Secretary,
Robert Rubin, who is now a top executive with Citigroup.
While this deregulation may have helped a handful of speculators fatten their
pockets, it did nothing to "sort out or cut back the tangled web of public guarantees
for bank deposits, insurance contracts and pension holdings that expose taxpayers
to massive liabilities for financial failures, FMC analysts warned in 1999.
In vain, the FMC also cautioned that "If some bubbles burst in the middle of
an ill-considered merger wave, the financial economy won't have Glass-Steagall's
... model of industry segmentation to prevent troubles in one part of a company
or sector from spilling over into others."
Leading up to the passage of the Gramm-Leach-Bliley Act, Republican Sen. Phil
Gramm told Citigroup lobbyist Roger Levy to have his boss, Sandy Weill, call the
White House to turn up the heat. "Roger did his work," Gramm is quoted as saying
in FMC's publication FOMC Alert.
"He called, and the White House jumped."
This all reminds me of when I interviewed Norman Mailer at his Provincetown
home in the summer of 1995. I asked him what he considered to be the big difference
between presidential candidates Bill Clinton and Bob Dole.
"Clinton looks better in shorts because his legs are bigger," he said. Now,
Mailer's remarks don't seem so funny. Do we have a two-party system or have Republicans
and Democrats become two competing factions of one big Business Party?
If voting Americans can overcome their chronic historical amnesia, the Green
Party might make a little noise in the next few elections.
Sean Gonsalves is a columnist with the Cape Cod Times. E-mail: sgonsalves@capecodonline.com
©1999-2002 Seattle Post-Intelligencer
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