The financial debacle was a crisis of the capitalist system that is the underpinning of our economy and our national prosperity. Now, almost two years after the worst economic weekend the United States has seen since the Great Depression, we are still trying to figure out what went wrong and how to fix the system that failed.
Critics of Wall Street contend that the failure can be laid in the laps of the commercial bankers, investment bankers, and traders who took irresponsible risks and jeopardized not only the futures and savings of friends, family members, and fellow Americans but also the futures of young Americans who will be paying for the folly of the decade past for years to come.
Others maintain that the root of the problem were liberal policies that, especially through Fannie Mae and Freddie Mac, encouraged lending to tens of thousands of people who were not financially equipped to be homeowners. Still others blame the inattentive regulators, or the repeal of the Glass-Steagall Act. Clearly, there is no shortage of theories and blame to go around. But blame won’t fix the system and restore the most crucial element of America’s economic success: confidence.
In the best of all worlds, banks, investment firms, and major players such as AIG would be chastened by the devastation that their risk-taking wrought on America and would become stringent self-policemen of their own excesses. But let’s not be naive that such a scenario is possible.
At the same time, one wonders if a raft of new regulations, such as those being proposed in Congress at this writing, is meaningful. Many Republicans argue that larding on more rules by a bigfoot government is pointless since the regulations that were already in place either weren’t implemented or didn’t work. And, they point out, some of the rules being considered would put the U.S. financial industry at a disadvantage to foreign rivals. Some conservatives and Tea Party libertarians maintain that the whole problem would be solved if the dice rollers on Wall Street understood that there would never again be a bailout by Washington, and that no entity—corporate or financial—would ever be deemed too big to fail. All these debates continue as this book goes to press.
There will always be disagreements about the best way forward, but there are questions that are on everyone’s mind: Have we learned our lesson? Are we going to be able to avoid another September 2008? My belief is that in the long run, no, we won’t. And while that’s sobering, it is also a function of capitalism as it is meant to be. Free markets are free markets. It’s messy, but this very freedom is what we prize above all else. Companies are going to make mistakes again. Another time will come when there will be overleveraging. But that doesn’t mean we shouldn’t strive to do better, to allow the system to operate optimally and fulfill its highest purpose.
This is the bottom line: Capitalism—for all its flaws—is the system that protects our individual rights. The alternatives—communism, socialism, monarchy—have all proven less effective, and in some cases have led to a systemic breakdown manifested in poverty, terror, and the deaths of millions. Consider those societies that don’t embrace capitalism—and freedom. So many of them do not advance. Even quasi-capitalist systems, such as those of China and Russia, have proved effective in raising up the downtrodden and chronically poor. On the other hand, North Korea and Cuba are examples of nations whose anticapitalist systems have led to decades of underdevelopment and misery. Capitalism, and the freedom it implies, has the power to give people hope and help them rise above restrictive regimes. For my part, I choose to be on the side of freedom.
Each afternoon, when I alight from my car on Broad Street in front of the New York Stock Exchange, I pause for a moment to look up. I have been doing this for sixteen years; it’s an automatic response. There is majesty to the edifice, and its architectural grace is breathtaking. A massive American flag stretches across its portals, and above six sturdy Corinthian pillars is a marble sculpture by the artist John Quincy Adams Ward, titled Integrity Protecting the Works of Man. I have often reflected that the financial crisis happened because we entered a period when the system itself lacked integrity. The stratospheric rise of wealth, the high-risk leveraging, the absence of a stabilizing philosophy, brought even the mightiest firms to their knees. Now, as we struggle to recover, we must restore the fundamental principles. We must, once again, allow integrity to guide and protect us.
EPILOGUE
It has been almost three years since the weekend of September 15, 2008, but to me, it feels like it has been a lot longer. Three years after the worst beating the financial markets and global economy have sustained in decades, money is moving once again into all sorts of asset classes, liquidity is back in most markets, and things feel much better. On its face, it might feel as though Wall Street is back to business as usual. The Dow has made an amazing recovery since the dark days of September 2008. The big banks still have some problems, but there is no longer fear of massive failure. The AIG scare is over, and even the left-for-dead auto companies are experiencing some renewal. The ranks of big Wall Street firms have thinned, and there are far fewer hedge funds, but things have pretty much stabilized. Some people are still enjoying record paydays. In fact, it might be easy to forget how tough it felt when the market was down an amazing 50 percent from its 2008 highs to the lows reached on March 9, 2009.
So, America, has Wall Street really changed?
I believe the answer is yes. First, massive capital raises followed the government support
