Age of Greed:
The Triumph of Finance and the Decline of America, 1970 to the Present
by Jeff Madrick
Knopf, 2011, 480 pp.
A new species of book has emerged to tell us about the financial panic and subsequent economic calamity that have befallen the United States (and much of the rest of the world). Some books zero in on a particularly dramatic episode like the spine-tingling final hours leading up to the decision to let Lehman Brothers go under. Others recount the rise or fall of some venerable banking house such as Goldman Sachs or Merrill Lynch and treat these commercial ups and downs as if they were the sagas of grand empires come and gone. Biographical variants gives us the inside dope on titans of finance, invariably men of obsidian hearts and egomaniacal will, undone by their global ambition. Yet another sub-species of this genre, of which Jeff Madrick’s Age of Greed is an example, tries to combine story-telling and profiles of the rich and infamous with a survey and analysis of the whole sorry landscape of financial wilding and how its debaucheries came to be.
Melodrama and moral drama supply the oxygen for this new literature. So we have books called Age of Greed, The Greed Merchants, The Big Con, Zombie Capitalism, The Great American Stick-Up, Bad Money, The End of Wall Street, The Banksters, Griftopia. Most of these books share a story line about what happened. An excess of greed nurtured in the highest precincts of the country’s financial establishment and ignored, deliberately or negligently, by those public authorities charged with monitoring and reining in these out-sized appetites, led inexorably to the near terminal breakdown, whose after-shocks reverberate to this day.
Madrick puts the case succinctly: “It was the house of cards built on Wall Street greed, unchecked by Washington regulators, that created the nation’s credit crisis…and caused the most severe recession in the United States since the Great Depression. “ He makes explicit what is often the implicit assumption of this whole corpus; namely, that “the collapse was the product of decisions of individuals, set upon making fortunes and becoming one of the kings of the mountains, not the inevitable failure of a system.” There is a kind of drear optimism about this premise because it strongly suggests that heightened vigilance in the future—perhaps a code of strictly enforced blue laws to punish financial gluttony—can put things right again.
HOWEVER, A nagging question remains. No one can deny that in good times, and more appallingly even amid the economic disaster, the “banksters” have shamelessly laid claim to Mount Everest-sized piles of money. This has infuriated citizens across the political spectrum (although that fury has so far had a negligible impact on CEO take-home pay). But greed preceded capitalism and if capitalism puts greed on steroids (although also encourages its ascetic, frugal opposite in the interests of accumulation), well, that has always been the case. If there has been of late a sudden excess of that sin, one might wonder if greed gets to the root of our profound economic dilemma or whether instead it is the nature of that economic crisis that explains the excess of greed.
Age of Greed is a useful book for exploring these matters. It seeks to integrate accounts of various movers and shakers of the neoliberal era—mainly business tycoons but also key politicians and intellectuals—into a more encompassing analysis of “the triumph of finance and the decline of America” since 1970. In the end, however, it fails at its larger ambitions, in part because of the book’s rather puzzling structure, which is built around individual profiles.
Jeff Madrick is an esteemed economic analyst whose work is probably best known from his writings for the New York Review of Books. His knowledge of the intricate mechanisms of business and finance is deep and intimate. Whether he’s discussing the merger and acquisition mania of the 1980s, the run up to the subprime mortgage debacle of the last decade, or the dismantling of the framework of New Deal financial regulation, Madrick deftly guides the reader through the often esoteric details.
The biographical sketches that make up the whole book are unfailingly informative. Some tread well traveled ground and feel a bit stale or one-sided. but others are livelier and more insightful. I liked particularly the ones of Jack Welch (“Neutron Jack” of lean and mean GE fame), Walter Wriston (the original “terminator” of financial regulation), Howard Jarvis (the tribune of California’s Proposition 13 property tax rebellion), Sandy Weill (Citicorp’s “greed merchant”), and George Soros (predatory speculator and political renegade from neoliberal orthodoxy). His dissection of the demonic Welch, pioneer of using the corporation as a portfolio of assets to be managed for their short-term, quarterly shareholder results, is surgically precise and functions well as a microcosm of things to come. Madrick’s treatment of Jimmy Carter and the productivity crisis of the late 1970s begins to get at some of the deeper reasons—too often elided in the book’s other portraits—that the political economy starts its gravitational shift in favor of finance. And Madrick does a neat job deflating Paul Volcker’s heroic reputation, recounting the mass unemployment, bankruptcies, diminished levels of investment, foreign loan defaults, and other miseries that followed in the wake of the Federal Reserve chair’s austerity measures in the late seventies and early eighties.
All of these portraits, Madrick would say, are studies in the permutations of greed. But a number of them don’t really point in that direction, suggesting that the Age of Greed suffers from some conceptual flaws. Principal actors in Madrick’s drama—people like Richard Nixon, Ronald Reagan, Milton Friedman, Volcker, Ted Turner, Jack Kemp, Alan Greenspan, even the guru of corporate excellence Tom Peters—seem by Madrick’s own account driven more by ideology or ambition, by a quest for glory and glamour, sometimes even by a parsimonious anti-materialism. For example, on Madrick’s telling, Reagan’s vision had more to do with self-reliance than self-interest. Yet after noting the president’s antipathy to materialistic self-absorption, his belief that hard work (however little he may have done of it himself) not material success is what matters, Madrick nevertheless charges him with providing a justification for “runaway individualism and greed.”
THERE MAY be more than inconsistency at work here, a disjuncture between the actual lives of some of the people he examines and the allegorical role assigned them by the larger purposes of the book. Take the stories of Sam Walton of Wal-Mart or Steve Ross at Warner Communications. In their separate spheres, each undertakes a relentless quest to become the biggest bully on the block, devouring competitors so as to dominate their industries by virtue of their sheer size. Much of the merger-and-acquisition mania of the late twentieth century that Madrick describes was in part about that. But is this motivated by greed or by the inherent logic of competition and capital accumulation, a logic that one can ignore only on penalty of becoming one of the devoured? What’s on display here is a rigorous discipline, not of individual character, but imposed from without by the implacable mechanisms of the market. Madrick does not explore the implications of this systemic argument because he’s committed to the idea that the “system” was not at fault for what happened to it.
Although the reader might anticipate a history of the “triumph of finance” from 1970 to the present, there is no narrative logic to the book. Instead, it splinters into its biographical fragments, an instance where the whole is a great deal less than the sum of its parts. Redundancy is one result. For example, I lost count of the number of times Madrick tells the reader about the erosion of Regulation Q, the critical financial rule governing interest rates offered by commercial banks and other financial institutions. While the reader can learn a lot about this or that person or legislative reform or business enterprise, the book remains a strictly anecdotal account of greed.
Age of Greed keeps doubling back in time both because it lacks an informing narrative line and because so many of Madrick’s players are involved in the same events. The book does appear to offer such a narrative and explanatory structure as it is divided into two parts: “Revolution” and “The New Guard.” However, it is not clear to me how the “revolutionaries” that populate Part I are in any essential way that would be germane to Madrick’s greed thesis different from the “New Guard” who show up in Part II. And we continue to hear about the ongoing doings of the “revolutionaries” long after we’ve entered the realm of the “New Guard.” Again, the book’s larger objectives are undermined by its form.
WHAT IS perhaps most striking about Madrick’s gallery of greed-meisters is who isn’t there. Neither Bill Clinton nor his Treasury secretary Robert Rubin makes the list. They do make significant cameo appearances in the biographies of some of Madrick’s principals, but presumably in Madrick’s view they do not rise to that status themselves. How can that be? The financialization of the economy (that is, the ascendance of the finance, insurance, and real estate sector at the expense of productive investment, especially in manufacturing) and the evisceration of the financial regulatory apparatus established by the New Deal took place on their watch, often at their initiative. If ever there was a time when Marx’s apercu that high finance is the “Vatican of capitalism,” its diktat obeyed by all without question, was piercingly true, it was during the Clinton boom years until our own day.
Moreover, what the Clinton era confirmed beyond serious doubt was that both major parties had come to a consensus on the political economy of globalized financial capitalism. Certainly this must count as a moment of substantial historical significance, one that consigned the remnants of New Deal “populism” to some attic of the Democratic Party. A book aspiring to capture an “Age,” to explain how it came into being, should have felt obliged, indeed might have welcomed the opportunity to explore the careers of two people so critical to making that “Age” what it is. Madrick includes entirely forgettable characters in his biographical roster, wheelers and dealers like Joe Flom or Jimmy Cayne, who have probably been forgotten already. Clinton, of course, won’t be forgotten. And Robert Rubin, although not quite the Alexander Hamilton or Andrew Mellon of his day, will still likely remain one of the more notable treasury secretaries of the twentieth century. But they don’t make the final cut.
Why? Maybe that decision stems from Madrick’s aversion to thinking of the crisis as systemic and to a related faith in the Democratic Party as the repository of the New Deal version of capitalism, a version many progressives would like to restore. But the New Deal not only civilized a broken-down economic system, it also sought successfully to extend the reach of the capitalist marketplace and credit networks not abolish them. It created the political and institutional foundations of mass consumption capitalism. Those foundations eventually crumbled as domestic opportunities for profitable enough capital accumulation grew scarce, a process that in turn exerted a relentless downward pressure on labor costs and the social wage. That is to say, in an increasingly fierce struggle to compete with lower cost foreign producers, American business began to undermine the foundations of “effective demand” among ordinary working people that had kept the system upright for so long. It set in motion a perverse dynamic of disaccumulation or what might be called the auto-cannibalism of an economy eating itself alive. The most developed economy in the world began a process of underdevelopment. Its infrastructure—road, bridges, tunnels, railroads, waterworks, dams, airports, electrical grids—were allowed to decay. The industrial core of the economy was hollowed out by precisely those “financial engineers” Madrick writes about. Deindustrialization signaled that the old system had broken down. This became a long, secular crisis. Gradually and then at an accelerated rate, it elicited one overriding response; namely, to leverage everything in sight. Everything in this case included capital assets that produced debt-based asset bubbles in stocks or housing or other securities and commodities that provided a kind of “privatized Keynesian” stimulus package for elite financial institutions. Meanwhile, below, a working population found itself drowning in a sea of usurious credit.
Elements of this analysis do crop up in Age of Greed, and when they do they are enlightening. But if the book fails to cohere and to rise to the promise of its title, it may in part be due to a profound reluctance to break with the New Deal past. No one could object to more vigilant regulation of the financial system, not to mention the rest of the economy, here and abroad. But a globalized version of the regulatory, Keynesian welfare state seems to circumscribe the far horizon of this perspective; one might call it the reinstatement of civilized capitalism. It is strange that progressives should become a party of the past, preoccupied with the restoration of American capitalism’s golden age. It is not an inspiring vision for those seeking a way out of this killing impasse. Indeed, the pathetic state of resistance to a malignant capitalism has suggested as much. Occupy Wall Street may change all that; at least it has pointed its blunt finger at what Madrick and others have avoided: the system. Meanwhile, the price of auto-cannibalism, already steep, will grow ever more draconian.
Steve Fraser is a writer and historian. He is editor-at-large of New Labor Forum and teaches at Columbia University.