‘Infectious greed’ hits business

Federal Reserve Chairman Alan Greenspan said last week that the nation’s corporate culture had become the victim, if that’s the word, of an attitude of “infectious greed.” This was Greenspan’s most successful exercise in phrase coining since he warned in late 1996 that the stock market had become the victim of “irrational exuberance.”

I suppose this raises the question of whether we moved from point A to point B, from exuberance to greed, as part of some inexorable process the chairman should have seen clearly and might have warned us about. In a memorable speech to the National Association of Business Economists in 1997, Greenspan explained how bull markets come to an end.

“What tends to happen is that everyone gets increasingly bullish and everyone is committed and there’s no one left to buy when someone wants to sell,” Greenspan said. “The trouble is that the person who is standing next to the market and sneezes at the time is going to find out that his sneeze caused the price fall.”

The most recent market declines were different, however. They have roots in the corporate rot that has produced scandal after scandal at major corporations, each seeming to top the other with nausea-inducing findings of misconduct and fraud. This might actually be good, if it meant that reassuring the markets was as simple as reforming the corporate culture.

But the collapse of stock prices has deeper and more disturbing roots. One is the financing of campaigns, which has become so costly that it robs the political process of any pretense of innocence. If Enron was the largest single benefactor of President Bush, then the collapse of that company and its association with the president spreads a lack of confidence that becomes infectious and self-feeding.

Another factor is the income gaps that have become more glaring in the past 10 years. These are measurable in a number of ways, not the least of which are the widening distances between the rich and the poor, between middle class and super-rich. Another is in the gap between corporate executives and workers on the shop floor that has been fed by stock options, golden parachutes and excessive executive compensation packages that have remade America on a less egalitarian model. Bush’s 2001 tax cut all but guaranteed these gaps will widen.

Another depressing factor: the suspicion that excessive deregulation is one of the causes of all these corporate scandals. This undermines the widely held view that the unprecedented prosperity of the 1990s was the direct result of a deregulatory process that began in the 1970s in the airline industry, flowered under President Ronald Reagan and became economic orthodoxy in the ’90s. One result was that corporations were effectively shielded from being sued by their own shareholders.

In a bow to corporate America, Congress, overriding President Bill Clinton’s veto, approved a measure making it much more difficult for shareholders to file such suits on the grounds that many were frivolous. In fact, the victim of one such suit filed last summer was you guessed it WorldCom. Before it could come to trial, WorldCom collapsed when it was revealed it had inflated its bottom line by improperly reclassifying $3.9 billion in operating expenses.

Meanwhile, Bush says he’s tickled pink that the Senate “has acted now on a tough bill that shares my goals.” But he also has spoken warmly of a competing House version, which is generally regarded as weaker. This suggests a split-the-difference result for a bill that screams for uncompromising reforms.

The first of the major polls to reflect the most recent scandals are now coming in. In one of them, 58 percent of respondents said the Republican Party was primarily interested in protecting big business. Even 38 percent of Republicans felt business had too much influence on Bush.

In his testimony last week, Greenspan did something rare. He confessed error. “My view was always that accountants knew or had to know that the market value of their companies rested on the integrity of their operations,” he said. Because of this, he had the view that regulation of accounting was “unnecessary and indeed most inappropriate.”

“I was wrong,” Greenspan said.