America’s more or less free-market capitalism is not under threat from Marxist-Leninism: That system’s demonstrated failures have consigned it to the ash-heap of history. Nor is it under threat from China’s system of managed economy plus political repression: We can’t even abide police breaking up a disease-infested occupy-something-or-other encampment. It is not even under threat from socialism, the hysterical charges of some anti-Obama extremists notwithstanding.
No, it faces a far more subtle enemy—the gradual loss of acceptance of the idea that markets more efficiently allocate resources than governments, of the parallel idea that properly but not excessively regulated markets produce unparalleled levels of material wellbeing (something Marx conceded), and, finally, of the conviction that material prosperity is fairly shared among all who participate in its creation, with enough left over to care for those too ill, old, or otherwise impaired to participate in productive activity. When the broad consensus erodes that capitalism as practiced in America is better at creating and distributing wealth than any other system, the way is open for fundamental legislative and regulatory changes that strip the system of its flexibility and innovative drive.
Which is what makes the behavior of the leaders of our financial sector so inexplicable. Start with a few widely agreed facts. The financial sector does not have a recent history of which it can be proud. Investment banks bet their own money that the mortgage bubble would burst while at the same time advising their clients to buy mortgage-backed securities. Managers of our largest banks took on risks they did not understand, safe in the knowledge that they were too big to fail—that the government would have no choice but to bail them out in order to avoid a cataclysm, or at least a deep recession. Compensation was decoupled from performance, with failed executives tottering off onto their country clubs’ golf courses after pocketing multimillion-dollar bonuses and being awarded the use of company jets and office facilities.
Some idea of the mindset of the leaders of the financial community can be gleaned from their response to criticism. Lloyd Blankfein, head of Goldman Sachs, claimed to be doing “God’s work,” a linking of God and Mammon that might have come as a surprise to the Lord. Charles “Chuck” Prince III, soon to be defrocked as CEO of Citigroup and sent packing with multimillions in payoffs, pensions, and perks after a reported $64 billion decline in the value of the bank over which he presided, explained the intellectually demanding risk analysis techniques he applied in his work: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” So were the passengers on the Titanic when it hit that iceberg.