Bandit Capitalism?

The Washington Times (Washington, DC), September 18, 2008 | Go to article overview

Bandit Capitalism?


Byline: Arnaud de Borchgrave, THE WASHINGTON TIMES

Six years ago, the $40 billion Enron debacle was seen as the tsunami of modern corruption scandals. But that was just a ripple in a sordid line of sleights of hand, insider trading, disinformation, financial losses disguised as profits, and predatory lending, all leading to a steady decline into bandit capitalism.

On the heels of Enron came Tyco International, Adelphia, Peregrine Systems and WorldCom that cost investors billions when their share prices collapsed and shook public confidence in securities markets.

Hardly a day goes by without Page One stories about business malfeasance and financial misfeasance. The avalanche of corporate scandals - more in five years than during the entire 20th century - has inflicted more harm to the world's greatest free enterprise system since 2001 than al Qaeda did on Sept. 11, 2001. And that includes the S&L disaster of the late 1980s and early '90s.

More than 1,000 small lending institutions known as savings and loans, also called thrifts, had failed. Half of the federally insured thrift institutions in the United States had gone under in less than a decade, and the associated slowdown in new home construction and the financial fallout contributed to the 1990-91 recession.

High, volatile interest rates, reckless lending practices, lax oversight and rapid deregulation paved the way for the greatest banking disaster since the Great Depression. Now 2008 picks up the sleaze baton and is in the lead.

Earlier this year, Kevin Phillips' book Bad Money: Reckless Finance, Failed Politics and the Global Crisis in American Capitalism, was on the money. Democratic capitalism has been on a glide path to bandit capitalism, rocking from one scandal to the next, oblivious to the harm being done to the superstructure.

In a classic Peter Steiner cartoon, the broker is on the phone to a client with his latest recommendations: Rather than buying individual stocks in corrupt and mismanaged companies, we suggest buying corrupt and mismanaged mutual funds. After the Enron massacre of thousands of employees' savings, pensions and children's education funds, the Securities and Exchange Commission determined at least half of the 88 mutual fund companies controlling 90 percent of the industry's $9 trillion in assets authorized large investors to play the fixed roulette wheel of market timing. The privileged few could buy funds at outdated prices and then unload them next day.

Primus inter pares, venture capitalist Wilbur Ross sees several hundred banks - out of 8,500 - tanking in the next year. Wall Street itself seemed up for grabs. Bear Stearns' meltdown pushed it into the junior ranks of JPMorgan Chase & Co. Fannie Mae and Freddie Mac were saved by a government takeover, which insiders knew was coming. The 158-year-old Lehman Brothers, the country's fourth-largest investment bank, crumpled under the weight of noxious real estate assets spawned by electronic circus barkers, and filed for Chapter 11 bankruptcy protection. …

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