There is a basic and indelicate question about the unfolding financial crisis that, to my mind, has not been asked loudly enough: Is the ethical and prudential rot so clearly on display in this historic episode confined to Wall Street and the world of high finance, or are other institutions, vocations, professions and commercial cultures similarly infected?
How worried should we be that there is, right now, similar corruption, ruthless selfishness and incompetence percolating unseen in medical care, the pharmaceutical industry, Pentagon planning, government management of Social Security, environmental regulation and planning, or air safety? How likely is it that politics and journalism are less susceptible to greed and shortsightedness than finance? Is Wall Street an aberration or a mirror? Are people only so cavalier when their salaries have six or seven zeroes instead of two or maybe three?
These aren't academic questions. How society responds to this crisis, in the end, will depend more on intuitive assessments of public character and trust than savvy insights into market regulation or mortgage-backed securities.
In the short term, we will all make certain decisions in the wake of the meltdown — as individual citizens, consumers and investors: Obama or McCain? Incumbent senator or challenger? Scale back holiday spending or carry on? Buy, sell or hold?
Over the long haul, these decisions, like Adam Smith's "hidden hand," will shape how the nation allocates power, trust, resources and money. We like to believe our individual decisions are rational and well-informed (it's the other guy who's emotional and biased). To an extent, they are; to a greater extent, they are informed by our gut, by how we assess the character of leaders and institutions, the values and integrity of different trades and sectors. This world is too complicated for much more than that; we filter information and process it in human terms.
The Meltdown of '08 could provoke a decline in public confidence in the economic system, and perhaps the political system, that could last for decades. After all, this nation has not recovered the confidence in government that was lost in the 1970s after Vietnam and Watergate. Power has been divided between the two political parties ever since, and the essential quality of government in this period has been gridlock.
On the other hand, after the Crash of '29, the country soon entrusted the federal government, and indeed one political party, with enormous power, power that lasted for a generation. The government used that trust to act boldly and, in retrospect, wisely.
I would suggest that on a very basic level, faith in the character of our culture was challenged more deeply in the 1970s than during the Great Depression. Or perhaps it's that the character of the culture rose to the occasion during the Depression and it didn't 40 years later.
What will it be now?
I don't have a clue. No predictions.
But I do believe that this financial crisis is likely to harden judgments that we have already made about the character of our culture that are very harsh and, sadly, very well-deserved. In response to my original question: The rot on Wall Street is just part of a much wider condition.
This year's meltdown didn't come out of nowhere. Recall the names of Boesky and Milken and remember the dot-com bubble. Think back to the financial headlines of five and six years ago: Tyco, Enron, Rite-Aid, Adelphia, Global Crossing, WorldCom, ImClone, Lucent and Qwest Communications. Allow me to seek the last refuge of a pompous pundit and quote myself, writing about money scandals in 2003:
I believe there is now a professional, well-trained elite, supported by large institutions, that is adept and willing to use corrupt practices to accumulate wealth. Despite assurances from game-theorists and anthropologists that the criminal cadre in the species remains a constant percentage over time, I believe today's mainstream, sanitized, and institutionally sanctioned financial crime rackets are being run by a new breed of crook. There have always been scandals and crooks in the history of American money, but our predator class is a distinct creation of the late 20th century. ...
I also believe that my darling baby-boom generation and our successors in gens X and Y, reared in raised-consciousness, righteousness and me-first, are probably to blame.
I am now even more firmly convinced that there really is a predator class. The people responsible for creating and bingeing on the mortgage junk bonds, derivatives and financial insurance scams that are now being bailed out are our society's most educated, highly trained and wealthiest professionals. The Meltdown of '08 was not caused by con men, crazed moguls and panicked masses. It was caused by financial bureaucrats of the baby boom generation who were paid megabucks for office jobs, who wear Patagonia fleece, $12,000 Brioni suits and read books about "reinventing the Self."
It is impossible not to be moralistic about this. Schadenfreude is rampant, but so is worry for the innocent bystanders. "In a crisis born of greed and recklessness, pity is in short supply," Time wrote this week.
But from a pragmatic angle, I want to know where else the predator class is preying? Managed care? The CIA? You get the point.
Already Americans broadly believe politics is low-rent at best, corrupt at worst. Confidence in the news media is a relic of the Cronkite era, even among practicing journalists. Americans are suspicious of lawyers, doctors and the clergy.
All this tells me we are wrong to scapegoat the I-bankers, hedge fund wizards and baby billionaires. We are right to worry far more broadly. Indeed, there is a predator class, but it is preying on a culture that is wounded and weak. That is our culture today; that is us. Sorry.
This financial unraveling appears to be a crisis of historic proportions. But American history in just the past 80 years shows that a crisis, economic or political, can spawn an inspiring, unifying response — or not.
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