A wide-ranging examination of the stock-market boom of the 1990s and its resounding crash.
Ken Lay, Jack Welch, Steve Case, and their ilk may have been the guys who burst the great bubble. But, writes former Wall Street Journal reporter and current Smart Money columnist Lowenstein, “It was not merely that many companies, or many Wall Street operators, misbehaved; it was that the very culture encouraged the misbehavior and was, in large measure, its accomplice.” Whereas Americans had fled the market in droves in the stagflationary ’70s (by 1979, Lowenstein notes, most of the money held in pension funds was in “bonds, bills, and cash, which was practically like stuffing it under a mattress”) and had only reluctantly come back in the ’80s, by the end of the first Bush administration they would embrace the stock market wholeheartedly, so much so as to be ruled by it. With that change of attitudes and allocations and the concomitant demand that the market make everyone rich, as bullish ’90s boomers promised, the whole world of finance changed: auditors, analysts, and accountants came under extraordinary demands to fudge the books, and the ever-evolving procedures of federal watchdog agencies seemed calculated to encourage them to do so. Cries for reform were sounded throughout the period, Lowenstein notes, but efforts to square the books were quashed by the likes of Sen. Joseph Lieberman, “a big recipient of Wall Street and accounting industry contributions” who is now talking a good game about cleaning house. Meanwhile, CEO salaries swelled, companies that “were worthless from start to finish came to be valued in the billions of dollars,” and honest financial reports became objects of exquisite rarity—all aspects of madness-of-crowds behavior that Alan Greenspan’s phrase “irrational exuberance” only begins to cover, but that Lowenstein describes in pointed detail.
Are there any lessons to be drawn? Yes, many. But as long as the culture “tolerates lying, even in seemingly marginal ways,” Lowenstein suggests, the great humbling of 2002 may foretoken worse to come.