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The Great Unraveling? December 17, 2008

Posted by neoavatara in Politics.
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‘The Great Unraveling’ is the title of Tom Friedman’s Op-Ed today, regarding the ‘imbalance’ of ethics and the markets. Basically, Friedman takes a ‘woe-is-us’ approach, stating that the Bernard Madoff affair is the cherry-on-top for the downfall of capitalism.

For those of you that don’t know, Bernard Madoff is the former head of NASDAQ, who for the last decade ran his own investment firm.  Now, it appears his highly ‘successful’ firm was nothing more than a $50 billion Ponzi scheme.  Some of the biggest names in finance, from HSBC, RBS, NJ Senators, and Mort Zuckerman were involved.

Friedman then carries this over to the financial crisis, calling Madoff’s irregularities a smaller symbol of the greater fraud and deceit in the market.  No argument there.

Here is the rub.   Friedman totally misses one key point; these kind of corruption charges have existed time immemorial.  Obviously, Friedman has forgotten about his history.

Let’s go back to 1790s, when Robert Morris, the first financial genius of Wall Street (He was Superintendent of Finance; he chartered the Bank of North America, the first commercial bank), proceded to get involved in land speculation; he was later sent to debtors prison.  How about the political machines, like Tammany Hall?  Or the ‘Robber Barons’ of the early 20th century?  Even the more recent stories of Enron, Global Crossing, Worldcom, etc. all occurred primarily during the 1990s, and only blew up during this decade.

Greed and corruption go hand in hand.  This is one of the great stories of capitalism, and one of its weakensses.  Greed makes the world go around, but too much greed stops the turning.  Capitalism needs to be continually rebalanced between regulation and free markets.  Nothing with Madoff or any other scandal will change that.  There is nothing new here, other the ‘woe is me’ attitude we are seeing.



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