The Specter of Wall Street

Wall Street sits at the eye of a political hurricane. Its enemies
converge from every point on the compass. What a stunning turn of
events.

For well more than half a century Wall Street has enjoyed a remarkable
political immunity, but matters were not always like that. Now, with
history marching forward in seven league boots, we are about to revisit
a time when the Street functioned as the country's lightning rod,
attracting its deepest animosities and most passionate desires for
economic justice and democracy.

For the better part of a century, from the 1870s through the
tumultuous years of the Great Depression and the New Deal, the specter
of Wall Street haunted the popular political imagination. For Populists
it was the "Great Satan," its stranglehold over the country's credit
system being held responsible for driving the family farmer to the edge
of extinction and beyond.

For
legions mobilized in the anti-monopoly movement, Wall Street was the
prime engine house of monopoly capitalism, leaving behind it a trail of
victimized businesses, consumers, captive municipalities, and crushed
workers. For Progressive reformers around the turn of the twentieth
century, Wall Street's "money trust" was the mother of all trusts, its
tentacles -- and the octopus was indeed a popular image of the time --
choking off economic opportunity for all but a favored few. Its
political power in Congress, in presidential cabinets, in statehouses,
in both major political parties was seen as so overwhelming as to
threaten to suffocate democracy itself.

All the periodic panics and depressions -- 1873, 1884, 1893, 1907,
and 1913 -- that, with numbing regularity, punctuated economic life
until the Crash of '29 and the Great Depression brought the house down
seemed to begin on the Street. And whether they actually began there or
not, all the misery that followed in their wake -- the homelessness,
the armies of tramps and hobos, the starvation, the bankruptcies, the
broken families, the crushing sense of dispossession -- was regularly
laid at the feet of the Street.

Despite the hot-tempered invective directed its way, the "Great Satan"
didn't face its comeuppance until the New Deal in the 1930s. Then, all
its transgressions -- its speculative greed, its felonious
insider-dealing, its cynical manipulation of popular credulity, its
extravagant incompetence and seemingly limitless capacity for
self-delusion -- left Wall Street truly vulnerable. Its reputation had
struck bottom.

Wall Street's Invisible Decades

Just like our Wall Street heroes of the recent past, so, too, back in
the 1920s the savants of the Street claimed credit for the rickety
prosperity of the Jazz Age. With the Crash they took the blame for the
disaster, just as they had taken the credit for the prosperity, and
were despised for their hypocrisy as well. Just as seems to be starting
to happen today, Congressmen, some of whom had spent their careers
genuflecting before the titans of Wall Street, suddenly hauled them
before investigating committees, there to be defrocked, treated to a
withering storm of biblically-inspired injunctions and Shakespearean
curses, and indicted in the court of public opinion. Wall Street was,
as it now seems about to be again, excommunicated.

Suddenly weak beyond compare, the Street was powerless to resist
Franklin D. Roosevelt's regulatory state. In rapid succession came the
Glass-Steagall banking act and the Federal Deposit Insurance
Corporation, the two securities acts of 1933 and 1934, the creation of
the Securities and Exchange Commission (SEC), the Public Utility
Holding Company Act, and much more. When, in 1936, the President
summoned the people to battle against the "economic royalists" everyone
knew just who he was talking about.

It's long been said that FDR's New Deal saved capitalism from itself.
That is true. One ironic consequence of that fateful turn of events
was, politically speaking, to cloak Wall Street in invisibility. After
all the shouting was over, after the installation of legislative
reforms had further chastened an already cowed Street and constrained
its penchant for financial wilding, it ceased to function as the
magnetic north for all those troubled by the inequities, injustices,
and deformations of capitalism.

During the long prosperity of the post-war years from 1945 to 1970,
when the income and wealth inequalities that had always been associated
with Wall Street narrowed dramatically -- economic historians know this
as "the great compression" -- news of the Street retreated to the
business pages and remained there. Except for an occasional act of
street theater, even in the tumultuous 1960s, the Street remained
largely exempt from sustained political criticism. Once the bete noire of all those who found themselves in opposition to the ravages of laissez-faire capitalism, Wall Street had been neutered.

Just as remarkable is how long that immunity from criticism lasted.
After all, Wall Street's record over the past quarter century is
nothing to boast about -- unless, that is, you happened to have made
your living on it or in its environs.

Beginning in the 1980s, the Street supervised and profited handsomely
from the de-industrialization of America. "Lean and mean" capitalism,
the watchword of the Reagan era, added up to the systematic dismantling
of the core of American industry. This was done in the interests of
"shareholder value," as well, of course, as the bounteous short-term
returns offered by the merger, acquisition, and junk-bond mania of
those years. Did the rise of a speculative economy of virtual wealth
and the fall of an economy that had once employed millions productively
at decent wages disturb the political equanimity of American public
life? Barely.

When the financial regulatory apparatus of the New Deal was weakened,
piece by piece, or simply eliminated by a triumphant conservatism, the
economy began to re-experience the cycles of bubble and bust so
familiar to previous generations of Americans. In 1987, the stock
market briefly collapsed. Then, during the late 1980s, a large-scale
savings and loan bailout was accompanied by the rescue of banks caught
short holding shaky Latin American debt. Not long after that came the
savaging of the "Asian tiger" economies by Thomas Friedman's
"electronic herd" of speculators, and the government-arranged bailout
of that period's biggest hedge fund, Long-Term Capital Management.

Before the country could catch its breath, matters got really serious
with the popping of the dot.com bubble, Enronization, and finally, of
course, our current catastrophe. Through all of this -- until now --
the political fallout was virtually nil. Sarbanes-Oxely, the act passed
by Congress in 2002 in response to an avalanche of Wall Street and
corporate scandals that began with Enron, was a remarkably tepid piece
of reformist legislation, given the scale of the debauch; yet, within
moments of its passage, howls of protest could be heard from our
offended friends on the Street, grievous complaints treated with all
due seriousness by the media, somehow still infatuated with Wall
Street's rain-makers.

The Return of the Repressed

No longer. There is a new agenda in America and it calls for
re-regulation, recovery, and retribution. It is enough to make one gasp
in disbelief, but nowadays there is practically universal agreement
that the financial sector must be more or less rigorously reined in and
regulated. (Hedge fund managers and some other hold-outs demur, of
course.) Yet mere weeks ago, "government regulation" was still a phrase
to be avoided like the plague, ranking right up there with "liberal" in
the vocabulary of political obloquy.

It's hard not to be reminded of just how quickly the political
chemistry of the country changed at the end of the 1920s. The presiding
figure who had loomed over that decade was Secretary of the Treasury
Andrew Mellon -- then considered the greatest Treasury secretary since
Hamilton. In 1929, his insane faith in the free market led him to
suggest to President Herbert Hoover that the way out of the Depression
was to do nothing, except "liquidate stocks, liquidate labor, liquidate
the farmer, liquidate real estate." That thought earned him the enmity
of a once admiring country. So, too, laissez-faire
has suddenly become much too French for Americans who, but moments ago,
treated it like the Holy Grail. We are all regulators today.

Of course, the devil, as every politician on television now makes sure
to say, will lie in the details of just what re-regulation consists of.
If all it involves is transparency, that won't be nearly enough. After
all, that is precisely what Sarbanes-Oxley promised when it required
financial institutions to make full disclosure of their activities.
When it comes to circumventing the rules of information sharing so as
to leave the insiders in the know and the rest of us out in the cold,
where there's a will, there will always be a way. The new regulatory
regime must have powers that extend beyond umpiring. New rules need to
be invented whose purpose is as much to assure economic recovery and
equity as it is to police the borders of illegality.

Indeed, popular anger fueling the regulatory crusade now seems to be
coupled with a deep-running fear of a coming depression and an urge to
reverse course. This, too, is symptomatic of a shift in the axis of
political debate, in the zeitgeist, if you will.

The meltdown of the financial system has called into question American
economic behavior over the last generation. Wall Street has come to
stand for a paper economy that produces nothing useful, nothing
tangible the way it once did. It has frittered away resources on
embarrassingly grotesque forms of conspicuous consumption and patently
non-productive forms of investment. It has left the real economy
underdeveloped, its infrastructure rotting away in plain sight, its
wealth fractured by unprecedented inequalities, dependent on sweated
labor, and its industries, across a broad spectrum, technologically
second-rate. It has left the country lost in a sea of debt and headed
for an abyss of unemployment, bankruptcy, and evictions. Somehow
regulation -- although not all by itself -- must address this, or so,
for the first time in a long while, large numbers of Americans hope and
desire.

People are now looking to the government -- that ogre of the dying
old order -- as the only power resourceful and strong enough to direct
the flow of capital where it's needed rather than where the discredited
overlords of the financial system think may be most profitable.
Conservatives, especially those who rightly balk at the mega-bailout
now in the works as unfair to the American taxpayer, decry what they
call financial socialism. But what then?

The Meaning of Retribution

As it did in 1929, the free market has failed beyond tolerance.
Overwhelming popular sentiment (which each new poll registers with
added vehemence) may, sooner or later, bring not only a full
recognition of just how wrong-headed the country has been for how long,
but how much in need it is of fresh institutions. New forms of public
authority, closely overseen by the mechanisms of democracy rather than
turned over to some autocrat on leave from his day job as an investment
banker, might have a chance of doing what was once unthinkable:
de-sanctifying private property and compelling it to perform in the
general interest when its private misuse has placed us all in peril.
The New Deal ventured in that direction. We need to venture further.

Here's a first principle: Refuse to reward those institutions that
have done us no service. If that entails their liquidation (to borrow a
word from Andrew Mellon), so be it. The world won't end, only the world
as they have known it.

Let's use what's left of their grossly inflated assets to re-start the
engines of real economic development. Compel investment in the
re-industrialization of the country along lines that reward labor not
parasitism, end the reign of the sweatshop, rescue the country from
environmental suicide, revise the division of wealth and income so we
can all live free of the indecencies of lavish piggery, and insist that
social responsibility takes precedence over the bottom line.

Many will seek retribution as well, just as Americans used to do in
the decades before the Great Depression. How could they not? That's
what happens when simple rage turns into moral outrage, when people are
finally called to account for the damage they've done. The emotion
fuels a chemical reaction even now at work in our cultural innards. It
may prove the catalyst for an intellectual and emotional explosion that
someday will add up to a genuine break with the past. It did so back in
1929.

However justifiable, cutting CEOs loose from the life-support systems
they've used to drain corporate treasuries for decades is small
potatoes. Do it, but let's hope the instinct for retribution will be
turned to better purposes -- to, in fact, reintroducing into our
political life and our economic behavior an ethos of social solidarity.
Let's see where that might take us. We could do much worse.