"A Confederacy of Dunces"

Sydney M. Williams

Thought of the Day

“A Confederacy of Dunces”

April 18, 2011

At dinner recently, a friend asked, “Do you think the younger [she is in her late 80s] generation would be capable of the sacrifices we made during the Depression and World War II?” While the consensus was no, I suggested they would, because man is adaptable in almost infinite ways. But such change derives from necessity, not from choice. We were speaking, of course, of the financial damage caused by credit crisis and the sense that in Washington and Wall Street there appears no sense of shame and no willingness to accept blame.

Washington and Wall Street attract smart, talented people, but included among them are those who are ethically challenged. Society encourages an attitude of measuring attainment exclusively through financial attainment (i.e. Madonna’s song of 1985, “Material Girl”,) whereas, in reality, there are myriad ways of measuring success – the most important being personal happiness, often dependent upon financial well-being, but not always.

As Charles Ferguson, in his Academy Award-winning film “Inside Job” and Joseph Stiglitz, in his recent article in Vanity Fair, suggested people from virtually all walks of life got caught up in the frenzy of the housing bubble – academics as well as Wall Street types. So indicting a few when millions were culpable may seem extreme. But I am not sure. The bad guys were not the ones acting from emotion, but rather the calculating ones in Washington who promised what could not be delivered (including a good home at a low monthly cost) and those on Wall Street who created and sold products making such leverage easy and affordable, at least for the moment.

Victory, the old saying goes, has a thousand fathers. Defeat is an orphan. When the housing bubble was in full bloom, millions were being made by Wall Street traders; politicians were glowing with re-election campaign coffers overflowing and with happy constituents who were buying houses in unprecedented numbers, and regulators were relaxing. Among the more amusing (and totally misleading) scenes in Ferguson’s award winning documentary are the interviews with Representative Barney Frank (Mr. Fannie Mae) of Massachusetts who is quick to find fault with those with whom he used to cavort. Likewise, according to John Kay, writing in the weekend edition of the Financial Times, bankers have been revising their view of the past, shifting responsibility onto the government. If bankers should be indicted, and I believe they should, so should those in Washington who flagrantly used the system for their own purposes – mainly to fund their re-election efforts, people like Mr. Frank, Senator Charles Schumer of New York and former Connecticut Senator Chris Dodd.

Last week the Senate issued a report, after two years of gathering, reading and analyzing 5900 pages of e-mails and documents from a host of investment banks that detail their attempts to profit from the booming mortgage market. The report recommends a number of “fixes” – examining mortgage related securities for legal violations and evaluating risky lending procedures. However, there are no expectations that any indictments will be forthcoming. The Angelides Commission’s report, issued in January, brought no indictments. Goldman Sachs settled a suit with the S.E.C. for $550 million, without admitting or denying guilt. Shareholders of Goldman of course, not the executives responsible for the damage, anted up the money. In a public company, it is the shareholders, who have entrusted their capital to management, who become responsible for the sins of a few rogue traders and bankers. (Through the whole sad saga, shareholders have been punished the most – forgoing dividends, paying the fines and living with depressed stock prices – despite being the least culpable.)

In a detailed report in last Thursday’s New York Times on the failure of a number of banks and the loss of billions of dollars in the 2007-2008 credit crisis, Gretchen Morgenson, pointed out that thus far “no senior executives have been charged or imprisoned…This stands in stark contrast to the failure of many savings and loan institutions in the late 1980s when 1100 cases were referred to prosecutors resulting in 800 bank officials going to jail.” In the wake of accounting scandals in the late 1990s, executives from Enron, WorldCom, Tyco and others did jail time. Ms. Morgenson suggests the lack of adequate supervision by regulators, such as the S.E.C., the Office of Thrift Supervision, the Federal Reserve and the Office of the Comptroller of the Currency may have played a role. The Office of Thrift Supervision, for example, from the summer of 2007 to the end of 2008 oversaw banks with $355 billion in assets fail. Yet, as Gretchen Morgenson writes, “The thrift supervisor…has not referred a single case to the Justice Department since 2000.” Washington and the world of banking have become too close. That confederacy, instead of being weakened as one might expect, appears to have strengthened.

It is my belief that almost everyone was to blame for the crisis – bankers, mortgage brokers, politicians and consumers. The desire to believe in a fairyland of ever-rising home prices and a world in which piling on debt would never hurt grew out of a culture that glorified a belief in ever improving lifestyles. The meltdown collapsed that dream. Our political leaders, in denying the severity of the financial situation and using the lure of ‘hope,’ are attempting to resurrect that vision.

We can and should be optimistic as regards the future, but we must first address our problems with realism. Letting the scoundrels go unpunished, be they Wall Street types, politicians or regulators, is a function of denial. Nobody, except the bad guys, benefits.

Because so many of us are consumed with the present, we have a hard time focusing on serious, long term issues, such as the size of our debt, or our competitive place in the world. We see this attitude in many aspects of our lives. Our public education system reflects this narcistic view. In an article in Saturday’s New York Times, Jennifer Medina writes of California where the state just passed a law mandating the teaching of gay history. Is this what we have become? A country more focused on advancing some political agenda than on teaching the basics of math, science and English? Is that the way to compete with Asia in the 21st Century?

In 1980, John Kennedy Toole wrote a book entitled A Confederacy of Dunces. I don’t mean to suggest we are a nation of Ignatiuses (though some on Wall Street and many in Washington bear some resemblance,) but we certainly could use a Myrna.