The Warning

I just finished watching Frontline's "The Warning" for the second time. I'm outraged, bemused, fearful, and saddened all at the same time.

Having lived through that time, I remember how magical the stock market's run-up was. The frightening crash on "Black October" in 1986 had the opposite of the expected reaction: the market recovered quickly. It wasn't a disaster or a wipeout - it was a buying opportunity.

Ironically, it was the first crisis of Alan Greenspan's career as Fed chairman. I wonder how much the orderly, swift recovery validated his ideology?

Everyone I knew was buying stocks, whether they liked it or not. We were all being moved out of fixed benefit retirement plans and into 401k. Who wouldn't want that? Where else could you get 10% annual returns except in the market? You were a sucker to do otherwise.

The apocryphal story of the Great Depression was that Joe P. Kennedy withdrew all his money from the market when he got stock tips from a shoe shine boy. If those kinds of folks were in the market, it was a sure sign to Kennedy that it was time to get out. What about legions of engineers and software developers snapping up Microsoft, Dell, Intel, Cisco, and Apple? That was just smart business. All those companies were in their heyday in the 90s. Remember when Microsoft was a growth stock? Everybody expected 10% returns on their investments back then.

I know my thoughts on the market still reflected the view that fundamentals mattered. Knowing a company's products and markets and financial situation was the key to choosing wisely. I wasn't comfortable with the day trading mentality of ignoring fundamentals and buying on movement.

But I always thought that the dizzying growth we experienced back then was due to the emergence of new technologies like computers and the Internet. I believed the mantra that said productivity was increasing, because I could see it in the industries I worked in. I certainly didn't understand derivatives or the risky behavior they encourage.

I did read the Wall Street Journal, which touted Mr. Greenspan as "The Oracle." His trips to Capitol Hill were legendary. Parsing his obscure statements for clues about the economy took on the character of examining the entrails of chickens to predict the future.

There haven't been many public figures in my memory that have had a more glowing reputation, only to see it tarnished it so badly. Mr. Greenspan has wounded this country twice: once by his encouragement of unfettered free markets and again by backing the Bush tax cuts in 2001. Our budgets have gone from surplus to raging deficits and off-budget war expenditures. The total debt is on the order of an entire year's worth of production and growing.

The Frontline program demonstrates clearly that this is not a problem of Democrats or Republicans. The entire political class is guilty here. Glass-Steagall was repealed on Clinton's watch as Rubin, Greenspan, and Summers cheered from the sidelines. The Community Reinvestment Act of 1978, passed under Jimmy Carter, contributed to our latest housing bubble by requiring banks to require credit to the entire community, regardless of ability to repay. Mr. Obama hasn't done enough to contain and reverse the damage in his first year in office.

It's been eighteen months since the failure of Lehman Brothers. There's a sense of unease caused by high, stubborn unemployment, but the panic that gripped the country has subsided. The rescue effort architected by the Treasury, Goldman Sachs, and the rest of Wall Street has had a calming effect. It feels like we've all rolled over, pulled the covers over our heads, and gone back to sleep in hope of better dreams.

But we still don't have any regulation of derivatives, in spite of the lessons from Long Term Capital Management and AIG. Banks are still too big to fail. Risk is still being masked and encouraged to a dangerous degree. The people who brought us to this place are still wielding power. The fourth branch of government, K Street and lobbyists, have been given a new weapon: their unregulated political contributions are now free speech similar to that of an individual.

There was a time in my life when there still seemed to be individuals running things that still put the general good ahead of their own. But that time is over. We've reached a dangerous spot where ideology and religion are trumping what used to be called rational, liberal thought. (Not "liberal" in the political spectrum sense; more of the "enlightened" meaning it had during Revolutionary times). Global corporations owe no allegiance to the country they're based in. After all, their workers live in many countries.

After watching "The Warning" I believe we're far from done. There will be more, worse shocks to come.