Financial archictecture needs shoring up

WASHINGTON — By chance, as the American financial system began falling apart recently, I was watching an excellent “American Experience” television film, “George H.W. Bush.” In the rich and varied life story of the 41st president, I inadvertently found some insight into where we are today — and why.

The narrators, historians such as Richard Norton Smith, first told an old story that we have, to our detriment and loss, largely forgotten. They spoke about the advisers to presidents like FDR, Harry Truman and Ike — men like Father Bush’s own respected father, Prescott Bush, Averell Harriman and Robert Lovett. Most of this genre of American aristocrats did not “run” for office; instead, they served as a team of bipartisan, consensus-seeking “wise men” who were so financially independent that they could advise, consent and leave the White House any time they disagreed.

Analyzing these earlier teams, one of the historians said of them, “They were people of wealth and dedication, dedicating themselves to public service.” In fact, they were morally and ethically called the “wise men,” but they were also, sociologically, known as the “Eastern Establishment.”

Greedy generation

Until our greedy and amoral generation of today took over, they practiced the old “Protestant ethic” that founded this country: the belief that every man should be judged only on what he produced and on his moral and ethical fiber, not where he came from, and that every American must be a moral caretaker of his country. Diversity has helped kill this because of a lack of inculcation of American values.

Today, as Merrill Lynch and Lehman Brothers fail, as Fannie Mae and Freddie Mac are essentially nationalized by the government, and as we reflect on the memories of Enron and so many others, we are seeing that the old Protestant ethic, the economic and financial “architecture” of the nation, is what is essentially failing. One recent Washington Post front-page headline called astutely for “A New Architecture for the Financial World.”

No more are there wise men at the top, who take pride in running an honorable financial world that makes the world safe for everyone. Those who took their place, as the moral principles of the country also fell, were the new wise guys, often up from nothing and replacing the idea of public service with greed and ignorance. Analysts say that we have had more corporate scandals in the last five years than during the entire 20th century.

The new book “The World Is Curved: Hidden Dangers to the Global Economy,” by longtime investment counselor and wise man himself, David Smick, has intellectually taken apart this distraught era. His title, of course, plays upon Thomas L. Friedman’s well-known book praising globalization, “The World Is Flat.” But Smick takes issue with this. To him, the world is curved, uncertain, with no one really knowing what is ahead unless we rethink our principles.

He finds that “our leadership must reform today’s dangerously flawed financial architecture.” It is, he says, “a tale of greed, hypocrisy and sheer folly,” in which the young brokers and investment bankers created their own private markets. As the banks repackaged individual loans and mortgages for the global market, banks moved further and further away from the borrower “or any need to worry about whether he or she would repay a loan.” In short, the money-crazed wise guys of the new world cared only for themselves, and in the end, of course, lost themselves, as well as everything else.

Politically disconnected

It is still another example of how disconnected this country has become — politically, socially and now economically — and how, above all else, we need to come together, as did the old wise men.

Smick talks finally of re-creating what we have lost. Reforming the world system “is a task that will require extraordinary imagination, not unlike the big thinkers in economics who emerged in 1944 at the end of World War II,” he writes. “These individuals devised an economic and financial structure that allowed for 60 years of peace and prosperity. Policymakers today need to engage in the same kind of bold thinking and to communicate to the public that a financial doctrine to restore order is in place.”

Universal Press Syndicate