Faith-based capitalism's plunge into the market abyss

Five years ago Bill Clinton announced that he was ending welfare as we knew it. Last week George W. Bush could have commemorated the occasion in his Wall Street speech by proposing to end capitalism as we know it the brand of capitalism that's wrecking more lives and families than welfare ever did, the brand whose cheats have been more obscene, more numerous and more criminal than "welfare queens" ever were, the brand that turned corporate directors into crooked dealers and shareholders into their willing addicts so long as the fix was in.

But the presidency is itself one of those brands, and George W. Bush only its most recent logo. Bush did not go to Wall Street to end anything. He went there to profess his "faith" in the system, faith generally being this president's solution to anything challenging when B-52s won't do. But faith-based capitalism is what got us into this circle of hell in the first place.

At some point in the late 1980s the market stopped being a bet and became a religion. The crash of 1987 probably did it, when that single-day 22 percent drop of the Dow, which should have screamed recession, turned instead into a sling shot to another bull market. Big investors realized they could do on Wall Street what Wal Mart does on Main Street: Muscle in, use deep pockets to ride out losses, then clean up when the little guys are wiped out. Losses become the necessary seed for fatter shareholder profits.

Building companies was OK. "Creating wealth" was better. Computers and SUVs aside, the American economy of the 1990s made nothing new. But it commodified the notion of wealth by turning stocks into a product with its own value-added wonders. There's a difference between the trading price of a share and its inherent value, of course. In the 1980s, the two began to diverge, slowly at first, exuberantly by the late 1990s, inflated by the NASDAQ's tech stocks. Those were the so-called dot-coms, which took the equation of the valueless product to its logical conclusion: There was no need for a product to back up the stock anymore. The concept was the stock. And the Initial Public Offering craze was to the 1990s what junk bonds were to the 1980s helium to a stock bubble as ephemeral as cyberspace.

But everyone played to the shareholder, dot-com or not. Superstar CEOs like General Electric's Jack Welch became the new deities, because they knew how to dismantle their companies while making their share price glow. By the early 1990s, as journalist Doug Henwood put it in a speech deconstructing the so-called New Economy, "it was clear that the quickest way to add 5 points to your stock price was to lay off 50,000 workers." By the late 1990s there wasn't much left to lay off, but the stock price had to keep going up. Enron and WorldCom showed the way by inventing profits and calling it accounting. It was brilliant, and for a few years it worked very well. On faith.

Faith, that is, in the infallibility of the market no matter how self-fulfilling its promises. The infallibility doctrine is nothing new. Like all such doctrines, its validity is somewhere between superstition and quackery, which is why we have regulations to temper it. Or used to. The Reagan administration spent the 1980s eviscerating the market of the checks and balances put in place during the New Deal. What Reagan couldn't do because of a Democratic Congress, the Republican Congress of the mid-1990s finished up. GOP Rep. Ron Paul, a market faithful, summed up his party's view of government regulators: "These little men filled with envy are capable of producing nothing and are motivated by their own inadequacies and desires to wield authority against men of talent."

It turns out the CEOs were the little men producing nothing.