God's gift to mankind
HORSHAM, England - It was the most talked-about economic conference of the year. One after another the great luminaries of the European and British economies took the dais at the Future of Finance Initiative conference held by the Wall Street Journal here on December 8 and spoke with erudition about the financial crisis, the structure of the markets and the lessons to be learned.
Everyone favors stronger regulation. That's de rigeur after the crisis. They all think there are lessons to be learned after the biggest financial meltdown in history - they could hardly say anything else, could they now.
But when you listen carefully you understand their message is something else entirely: We are the masters of the universe. We should keep running the show.
While the bankers were getting cramps in their arms from patting their own backs, the politicians were also remarkably adulatory. Tory leader David Cameron, who will probably be prime minister in a year and a half, demonstrated a laudable grasp of finance, economics and management. To an Israeli the British politician's command of the facts is enviable, given the ignorance of most of Israel's politicians. But at the end of the day, Cameron didn't deliver anything more substantial than the bankers had. The City must be protected at all costs because it's a key industry. The fact that that "key industry" had reduced the entire British economy to its worst straits since World War II, well, Cameron didn't dwell on that.
Arguably, the rally of the global financial markets, fueled by gigantic influxes of taxpayer money that mortgaged the future of taxpayers the world wide, overcame the public's outrage at the orgies of indulgence during the decade preceding the bust.
But then Paul Volcker took the dais.
Volcker is like a tribal elder. He headed the U.S. Federal Reserve from 1979 to 1987, taming inflation by means of painfully high interest rates. Afterward he disappeared from the public eye for 20 years, while his successor Alan Greenspan shot to prominence as the superstar of the economic scene. And then he took the dais at Horsham and said something that nobody had said.
Greenspan's free-market train crashed, forcing taxpayers to pour trillions of dollars into a rescue mission for the very financial markets that Greenspan and the bankers had forged. Volcker, free of any association with the economic policies that created the crisis, staged a quiet comeback as economic adviser to U.S. President Barack Obama. And then he took the dais in Horsham two weeks ago.
Toward the end of the conference Volcker, now in his 80s, was asked his opinion about the suggestions raised in the forums for reforming the financial systems. "You won't like what I have to say," Volcker answered. He'd heard a lot of proposals and agreed with some of them, to a degree, he said. But his general feeling was that the herd of bankers at Horsham wasn't even near responding to the crisis in any meaningful way.
People may think that bankers are going to suddenly become all touchy-feely and socially aware, but Volcker for one seemed skeptical. The financial system reduced the global economy to the brink of bust, Volcker elaborated, yet in his 60 years in banking he doesn't recall voices rising in protest at the gargantuan salaries. If anything the economic leaders keep insisting that the bankers are essential, they're adulated, they're wonderful, hell - they're God's gift to mankind.
"Has there been one financial leader to say this is really excessive? Wake up, gentlemen. Your response, I can only say, has been inadequate," Volcker rebuked the astonished leaders in the audience.
After the mind-numbing addresses from bankers touting their own magnificence Volcker was a breath of fresh air.
Here in Tel Aviv, we've also been treated to a long line of bankers, brokers and businessmen banging their own drums, taking credit for the recovery of the markets and spitting at any regulation or reform that could shackle their power, their control over politicians or their bonuses.
But we Israelis don't have a Volcker. We don't have an esteemed sage who thoroughly understands finance, economics and business and is prepared to get up into the smug faces of our "economic leaders," the ones who fill the business pages of the papers with their pithy sayings that coincidentally always seem to serve their own interests. We have nobody to shove a mirror into the faces of these people as they marvel at their own achievements.
Since the crisis broke out hardly a day goes by without a press mention of the late British economist John Maynard Keynes. The massive government intervention in the markets finds legitimization in "Keynesian economics," which is based on Keynes' theory about the need for, and advantages of, government intervention during economic downturns. But his tenets would not have been popularized worldwide if not for another economist, who passed away last week.
Paul Samuelson, who died lat age 94, was a Nobel laureate in economics and the mentor of some of the world's greatest economists including George Akerlof, Paul Krugman, Lawrence Klein, Franco Modigliani, Joseph Stiglitz and Robert Merton. He was also a prolific author. His seminal textbook, "Economics," from 1948, has been translated into 20 languages including Hebrew.
Samuelson had much to say about the present crisis, including this amusing broadside at Greenspan, after the former Fed chairman admitted to having erred: "And this brings us to Alan Greenspan, whom I've known for over 50 years and who I regarded as one of the best young business economists... But the trouble is that he had been an Ayn Rander. You can take the boy out of the cult but you can't take the cult out of the boy. He actually had instruction, probably pinned on the wall: 'Nothing from this office should go forth which discredits the capitalist system. Greed is good.'"
Ayn Rand, born Alisa Rosenbaum, was a best-selling author who formulated a philosophical system she called Objectivism. She popularized her theories, which aggrandize individual rights and selfishness, in her novels "The Fountainhead" (1943) and "Atlas Shrugged" (1957). "Achievement of your happiness is the only moral purpose of your life, and that happiness, not pain or mindless self-indulgence, is the proof of your moral integrity, since it is the proof and the result of your loyalty to the achievement of your values." Ayn Rand, 1905-1982