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Bubbles, bailouts and why we never seem to learn


What were our captains of industry and finance doing during their years in the hallowed halls of education when they were supposed to be learning history and its lessons? Cramming for a quiz on discounted cash flow or copying their fraternity brothers' accounting homework? Or maybe they were skipping class to buy a term paper to get through a useless liberal arts course like history. What does history teach about quarterly earnings and capital expenditures? Who wants to read all that nonsense about the French Revolution all over again? They had had their fill of it in high school.

Obviously they didn't.

History does repeat itself, and it seems to do it with greater frequency in the financial world than elsewhere. Yet those who are in the executive suites of banks and lending institutions seem to have been elsewhere when their professors were lecturing.

Financial crises seem to occur with increasing regularity these days—a few years ago there was the dot-com bubble; in centuries past there was the tulip mania in the Netherlands—or maybe it's just the media talking about it too much and making it happen. Actually, all of us are at fault.

Gordon Gecko, the character in the film Wall Street, told us that greed was good, and nobody disputed him even though most Christian churches list greed as one of the seven deadly sins. We can't be satisfied with a 3-percent return on our savings, or a mix of investments in stocks and bonds that bring modest returns. We want that 10-percent-or-better return on our investment that smooth talkers like Bernie Madoff are delighted to offer and we are only too willing to swallow—hook, line and sinking 401(k).

But it's not only Ponzi scheme operators and overpaid bank executives that are at fault, although the scope of their avariciousness can be beyond astonishing. A $1,400 parchment trash can for former Merrill Lynch chief executive officer John Thain? Maybe we can put it near Tyco chief executive officer Dennis Kozlowski's $6,000 shower curtain and $15,000 umbrella stand.

We all seem to be indifferent to history and its lessons when it looks like we can make a few more bucks than the other guy. Surely, most of us have heard George Santayana's famed insight that those who cannot remember the past are condemned to repeat it. We just haven't taken it to heart—wrapped our heads around it, as so many people are wont to say these days.

Ignorance of history might be attributed to an educational gap. Some inner-city schools have such gaps and kids don't learn to read well enough. They won't be left behind, though. That's the law. Hopefully, that shortfall can be repaired by literacy training. Even adults can learn. I've seen it.

Perhaps a crash course in history and its implications for modern life could be established and promoted. After all, we have weekend MBA programs. But learning not to repeat history's mistakes and failures isn't the only troubling issue. There is also a mindset of arrogance and indifference that many executives display toward their fellow citizens. In late January, as the economy was tumbling even further down the hill into the recessionary trough, one big pharmaceutical company announced it would buy another big drugmaker for billions of dollars. On the same day that New York-based Pfizer Inc. said it would slash thousands of jobs, a dozen other major companies, including Caterpillar Inc., Peoria, Ill., and Home Depot Inc., Atlanta, were announcing substantial employee cutbacks.

The takeover news spawned a buying spree on Wall Street, and the economic analysts on some of the business news programs were marveling that the mergers and acquisitions business was recovering, a sure sign that the financial bailout of Wall Street was working. Big companies can get more money to buy their competitors and become even bigger. That solves our economic problems, right?

What will these industries tell the multitudes that file out the doors of their plants and offices with a severance check and little hope for finding another job elsewhere? Let 'em eat Prozac! Marie Antoinette said much the same thing to the starving French peasants when they could no longer buy flour to make bread. Not too much later they lopped off her head.

I could argue that we are seeing a repetition of that in the financial industry. Where are those top executives who were taking home million-dollar salaries and even bigger bonuses and popping up on CNBC with unexpected regularity? Thankfully, their heads are still attached to their bodies, but they and many of their coworkers are now unemployed. The same financial kings and noblemen who promoted and encouraged acquisitions and financed management buyouts are jobless, although they're probably not feeling financial pains like the average unemployed Joe. Still, there are a lot of them out on the street looking for a dwindling number of jobs, much like many of the people that their merger-and-acquisition departments helped put out of work.

I'm just as strong a believer in Adam Smith's invisible hand as any other registered Republican capitalist roader, but there is something fundamentally twisted about the perception that what's good for Wall Street is good for the rest of us. MICHAEL MARLEY

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