In The Wealth of Nations (1776), Adam Smith wrote: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.” This certainly seemed an apt description of the behavior of leading bankers and investment houses whose greed helped to bring down the American economy. Like the scandals of the 1920s and 1990s, those of the Bush era damaged confidence in the ethics of corporate leaders. Indeed, striking parallels existed between these three decades — the get-rich-quick ethos, the close connection between business and government, the passion for deregulation, and widespread corruption.
Fueled by revelations of corporate misdeeds, the reputation of stock brokers and bankers fell to lows last seen during the Great Depression. One poll showed that of various social groups, bankers ranked third from the bottom in public esteem—just above prostitutes and convicted felons. Resentment was fueled by the fact that Wall Street had long since abandoned the idea that pay should be linked to results. By the end of 2008, the worst year for the stock market since the Depression, Wall Street firms had fired 240,000 employees. But they also paid out $20 billion in bonuses to top executives. Even the executives of Lehman Brothers, a company that went bankrupt (and, it later turned out, had shortchanged New York City by hundreds of millions of dollars in corporate and other taxes), received $5.7 billion in bonuses in 2007 and 2008.
This cartoon suggests that the near-collapse of the financial system in 2008 indicates the need for “a little more regulation.”
It was also revealed that Bernard Madoff, a Wall Street investor who claimed to have made enormous profits for his clients, had in fact run a Ponzi scheme in which investors who wanted to retrieve their money were paid with funds from new participants. Madoff sent fictitious monthly financial statements to his clients but he never actually made stock purchases for them. When the scheme collapsed, Madoff s investors suffered losses amounting to around $50 billion. In 2009, Madoff pleaded guilty to fraud and was sentenced to 150 years in prison. In some ways, Madoff’s scheme was a metaphor for the American economy at large over the previous decade. Its growth had been based on borrowing from others and spending money people did not have. The popular musical group Coldplay related what had happened:
I used to rule the world....
I discovered that my castles stand
On pillars of salt and pillars of sand.