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|The greed that is ruining America|
|06/12/02 at 16:02:12|
|THE GREED THAT IS RUINING AMERICA |
WILL HUTTON on immoral fatcats who have plunged the US economy into crisis
IT WAS businessmen like them, it was said, who were making America great again.
If only Britain and Europe could boast the feared wizards of enterprise like Enron's
Ken Lay, Tyco's Dennis Kozlowski and WorldCom's Bernie Ebbers then we too
would have cracked the secret of the enterprise economy.
Just two or three years ago their faces adorned the front pages of American business
magazines, and as the value of their share options took their pay to stratospheric
levels there was an army of conservative pundits telling Americans it was a small
price to pay for the growth, innovation and jobs they brought in their wake.
All three were apostles of as little regulation and taxation as possible, and
consecrating everything to pushing up the profits that drove share prices higher.
Fuddy-duddy Europeans should organise their companies the same way, we were
told. London needed little prompting - our business community set out to follow
where the great American chief executives lead.
Business and business values, American style, were the future. Maximise shareholder
value, make yourself a fortune - and it will be good for the economy.
Today, with corporate America in its worst ever post-war crisis and its leaders in
disgrace, it looks very different.
ALL three chief executives and the companies they ran have proved to have feet of
clay along with many others.
All have been laid low by stories of mismanagement, greed and sometimes straight
fraud as they took advantage of "light regulation" to manipulate profits using the
loopholes provided by laissez-faire Wall Street.
Nor does the story end there. The great Wall Street investment banks and
stockbroking houses have been discovered deceiving American investors.
Merrill Lynch and CSFB, two of the largest, have paid enormous fines for what they
did. Investigations are being launched into mass falsification of their telephone traffic
by the telecoms companies, again to boost their profits artificially.
The pressure Wall Street puts on US companies to make ever greater profits is
phenomenal. If company directors don't succeed, they can expect to be taken over
or lose their jobs - and are handsomely rewarded by share options to make sure they
But this pressure has made them not just cut corners, but to break all codes of ethical
Last week it wasn't a left-wing politician but the chairman and chief executive of one
of the world's largest investment banks, Goldman Sachs, who said that America
faced the biggest crisis of confidence in its capitalist system in his working lifetime.
And he proposed a wide range of reforms to clean up what now looks like a stock
market and business world mired in systemic corruption and malfeasance. But this is
not just America's problem. It is ours too.
Much of the US boom and its ability to support the rest of the world's growth has
rested on a con trick.
Americans have been able to borrow at home and abroad on the promise that even if
they couldn't repay what they had borrowed it wouldn't matter because the assets
they pledged as collateral would go up in value.
One way or another lenders could expect to get their money back.
Consumers built up stunning debts in relation to their earning power, and imports
have so dwarfed exports that America needs to find around £1billion a day to
balance its international books. For years now foreigners have squared the circle,
voluntarily investing in the US - so providing those crucial foreign currency flows -
because they wanted to enjoy the apparently endless boom and the chance to make
stock market millions.
As a result, the dollar stayed up, interest rates stayed low - and Wall Street and the
American housing market carried on rising, making individuals and companies alike
seem wealthy enough to pay back their debts in any circumstances.
But now the trust crisis threatens to change all of that.
Foreigners - just like ordinary Americans who are increasingly protesting at being
swindled - have become leery about investing in the American stock market because
nobody can be certain whether an American company really has made the profits it
declares, or whether it has being fiddling its accounts. Over the past few months the
dollar has been weakening and the much-derided euro rising on the foreign exchange
markets. Despite hopes that the US economy may be recovering, Wall Street has
been sinking to new lows.
Every day seems to bring news of a fresh scandal.
Reading the runes of the financial markets is a mug's game, but every expert knows
that if and when the confidence trick gets exposed then both the dollar and Wall
Street will in for a very rough ride.
The United States owes the rest of the world a mind-boggling two trillion dollars and
its recovery depends upon being able to carry on building up those international
debts - already worth more than a fifth its national output - at the same rate as it has
The reality is that something will have to give, and the most likely weak spots are the
dollar and Wall Street.
It isn't just that both are plainly too high, it's that in today's world markets don't fall
gradually - when confidence goes, they collapse at dizzying pace because of the
monumental scale of speculation.
The dollar needs to fall 30 or 40 per cent to correct America's ballooning trade
deficit, and that drop - when it happens - will be sudden and self-feeding.
The US will be forced to raise interest rates to stem the fall, and that in turn will
prompt a sell-off on Wall Street.
There will be more corporate misdemeanours exposed. Investment will be cut back -
but the scope to counteract the whole recessionary wave by lowering interest rates
again will be limited by the need to hold confidence in the dollar.
THE great American growth machine will be stopped in its tracks. Worse, it could
It is a salutary lesson not just for the American conservatives who are the designers
of this fiasco, insisting blindly that the market economy the US was developing on
conservative precepts could not be equalled - but for those in Britain and Europe
who were naive enough to believe the propaganda.
Building great companies is a long term bqsiness that requires patience, vision and
integrity - and companies, like the individuals who run them, have obligations to the
societies of which they are part - including paying taxes and obeying the same rules
of decency we expect in our own dealings.
American conservatives decried such notions as " European socialism" and
obstructing "liberty". Now they and the business establishment who pushed these
ideas are exposed as self-serving charlatans.
The European economy may be a tortoise, but the attempt to be fair that underpins it
looks more and more valuable.
After all, it was the tortoise that finally outran the hare.
-Will Hutton, is an economist and bestselling author. His new book, The World
We're In where he develops these ideas is published by LittleBrown, price £17.95.
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