American crisis
By
Max J. Castro Read Spanish Version
majcastro@gmail.com
“Business
is crime.” That stark statement appears in sociologist Edwin
Sutherland’s 1939 classic White
Collar Crime.
Sutherland’s assertion was hyperbolic — not every business engages
in criminality — but it is grounded on empirical reality,
specifically on research the author conducted in the years between
the two world wars. In that study, Sutherland discovered that the
vast majority of big U.S. companies had behaved in ways that violated
pertinent laws and regulations, including both criminal and/or civil
violations.
Sutherland
died in 1950 but if he were alive and conducting research today he
would have had an extremely rich database with which to work. The
Enron scandal of a few years ago almost pales when we look at the
extent of the malfeasance, and in some cases actual criminality, that
had been taking place both on Wall Street and on Main Streets across
the USA wherever mortgages were transacted. And perhaps an even
bigger scandal than rampant illegal behavior is what is legal, for
example the gargantuan compensation that top executives of companies
that have been losing money and squeezing workers have been routinely
collecting year after year.
Sutherland
dug up his data by poring over court reports and regulatory agency
documents but today he would have found mounds of data just by
opening up his newspaper or searching the Internet. “Wall Street
Profits Were a Mirage, But Huge Bonuses Were Real,” screamed a
headline to a page one article in the December 18th
edition of the New
York Times.
Next to it was this story — “Fraud Scandal Shakes the Real Estate
Industry.” Moreover, the attempts at reform so far have proven
dubious. “Executive Pay Limits May Prove Toothless; Loophole in
Bailout Provision Leaves Enforcement in Doubt” (Washington
Post, December
15).
Recently
the focus has been on the gigantic fraud perpetrated by New York
financier Bernard L Madoff, who used a pyramid or Ponzi scheme to
steal an estimated $50 billion. According to the New
York Times, “Almost
no segment of New York City’s real estate industry was spared in
the Madoff scandal, which may be history’s largest Ponzi scheme:
commercial brokers large and small, little known developers and
prominent families…” The paper goes on to quote Robert J.
Ivanhoe, a lawyer for ten developers who lost from $5 to $50 million
to Madoff’s confidence game: “The level of devastation, both
financial and on a human level, is astounding.”
Despite
its vastness, Madoff’s pyramid scheme looks like a microcosm of
what has been happening in the financial system as a whole, and the
resulting devastation is affecting a vast segment of the U.S.
economy, especially the work force now suffering from increasing
levels of unemployment and tight credit.
Yet
the pain is most definitely not being felt by those on Wall Street
who pocketed billions in bonuses over the last few years. In 2006,
for example, Merrill Lynch gave out between $5 billion to $6 billion
in bonuses. That year the company reported record earnings of $7.6
billion. Merrill’s earnings, says the Times,
“turned out to be a mirage…The company has since lost three times
that amount, largely because the mortgage investments that supposedly
had powered some of these profits plunged in value. Unlike the
earnings, however, the bonuses have not been reversed.”
Now,
because of a loophole in the federal bailout of the financial system,
companies that got federal money can continue to give out extravagant
bonuses even as their stocks plunge and their employees are laid off.
“The flimsy executive-compensation restrictions in the original
bill are now all but gone,” Charles E. Grassley, the ranking
Republican on Senate Finance Committee told the New
York Times.
The
United States is simultaneously immersed in a number of crises —
financial, economic, liquidity — but the worst of all may the crisis
of ethics and morality. Every day a new scandal is uncovered that
exemplifies the pervasiveness of business corruption. It turns out
that even Moody’s
Investors Service,
which is supposed to perform objective financial research and
analysis, was allegedly influenced by the very companies selling
mortgage investments subject to Moody’s ratings. “Business is
crime,” wrote Edwin Sutherland. “Greed
is good,” declared Gordon Gekkoo, played by Michael Douglas, in the
Hollywood movie “Wall Street” (1987). As anyone can now see, in
recent years, on Wall Street and beyond, reality has been imitating
sociological analysis and film fiction. It is time for a profound
change. Let us hope it begins on January 20.
