The thesis research I'm doing these days deals indirectly with the development of a credit-based economy in 17th century England. I'm studying ways of calculating interest received or paid and it's apparent that promises written out on pieces of paper served for money with growing frequency. Although shortages of coins, the dangers of carrying lots of coins, and the difficulties of calculating the true value of coins made credit transactions necessary, people were coming to see lots of other advantages.
At first the word "credit" carried all the weight of its multiple meanings. In particular it connoted trust, the assurance that both parties were committed and fully able to do exactly what they promised one another in the paper documents they signed. In time, merchants' courts evolved to enforce these promises making it unnecessary for one party to personally acquainted with the other. However, these courts came to have little influence over the speculative trading of some forms of credit transactions, in particular the buying and selling of securities -- the bonds that the government used to borrow from citizens and the stock issued by the East India Company and other trading ventures. Securities were a different form of credit, one much more subject to abuse than merchants' credit.
My research isn't concerned with the emerging stock exchanges in European cities of the time, but as it happens I'm reading a book that deals with the subject: David Liss's Conspiracy of Paper. It's an excellent amalgam of mystery story, historical novel, adventure tale, and exploration of chicanery on a huge scale. It is set in London at the time the South Sea Bubble and its hero takes us into the intricacies of that vast web of intrigue. Bit by bit the author unfolds the conspiracies, manipulations, and crimes of some of the wealthiest and most powerful men of the time -- men whose place in society and its institutions was one of public trust. The story thus concerns, in part, the abuse of trust.
If you know the story of the South Sea Bubble at all, you know that this massive abuse of trust led to the ruin of many English men and women from all walks of life.
As it happens, too, we ate out last night at the New Deal Cafe in Greenbelt Maryland.
Greenbelt was created as part of the New Deal in the aftermath of the bursting of another financial bubble -- the the Wall Street Crash of 1929. It's cooperative approach to commerce and civic life has made it a conscious antidote to the greed and betrayals of trust that foment financial bubbles.
After the meal, we attended a performance of G. B. Shaw's play Mrs. Warren's Profession at the Greenbelt Arts Center
The play is about Mrs. Warren's profession, of course, but also about women's rights, the generational gap between a mother and daughter, the conflicting impulses of career and romance and of business and the arts. But it's also about people with wealth and social position who maintain an aura of probity while earning money in anti-social ways. In this sense, it compliments the Conspiracy of Paper and the betrayal of public trust. In fact, Shaw makes this connection fairly plain in speeches by two characters: the mother, Mrs. Warren herself, and her partner, Crofts. The latter, a Baronet, speaks of the financial dealings men of his class, including for example his brother the M.P. who "gets his 22 per cent out of a factory with 600 girls in it, and not one of them getting wages enough to live on." He says, "As long as you don't fly openly in the face of society, society doesn't ask any inconvenient questions; and it makes precious short work of the cads who do. There are no secrets better kept than the secrets everybody guesses." Later Mrs. Warren puts the matter a little more bluntly: "You think that people are what they pretend to be: that the way you were taught at school and college to think right and proper is the way things really are. But it's not: it's all only a pretense, to keep the cowardly slavish common run of people quiet. It's truth, gospel truth Vivie: the big people, the clever people, the managing people, all know it. They do as I do, and think what I think. I know plenty of them."
This tirade brought to mind this: A Con Game In Pinstripes
What is so telling about these stories [of financiers lying to their clients, regulators, and the public] -- and, rest assured, there will be many more before we're finished -- is that they come only a few years after these same companies reached similar settlements for defrauding many of the same investors during the telecom and dot-com boom. While the fraud back then had more to do with bogus research and accounting and manipulation of initial public offerings, it is clear that they sprang from the same slimy ethical culture that has produced the current credit crisis. Wall Street has become a fundamentally corrupt enterprise in which the motto is: "We'll do anything for a fee."
I refer not to the narrow legal definition of "corrupt," but to the general instinct to mislead clients, double-cross and collude with counterparties, and pull the wool over the eyes of investors. It is the kind of corruption grounded in the attitude that it's all just a game in which the only rules are "buyer beware" and "heads I win, tails you lose." In a corrupt business culture like that of modern-day Wall Street, cynicism is rampant, candor and accountability are first casualties, and a man is measured by the size of his bonus rather than the depth of his integrity. It's not so much immoral as amoral.
The tell-tale signs of this endemic corruption now litter the financial landscape.
To find it, look no farther than the televised bleatings of research directors and equity strategists who, until the last few weeks, were still talking about a stock market rebound in the second half of the year and have never once forecast a losing year for the S&P 500.
You can find it in the spectacularly misguided mergers and acquisitions that were conceived, negotiated, blessed and underwritten by investment bankers who are paid enormous fees no matter how things turn out for investors. Their latest bright idea: the merger of Fannie Mae and Freddie Mac.
It's right there in the Wall Street Journal, where it is reported without a trace of irony, that some master of the universe who was forced out of Citi for overseeing the loss of billions of dollars has been snatched up by Morgan Stanley while another is staked for a couple of billion dollars to start his own hedge fund.
I hadn't been to Greenbelt in years. Back then I would occasionally join in the Greenbelt National Park Training Race Series