Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick, Alfred A. Knopf, New York, 2011, 464 pp
For the sake of neatness, historians like to name each period of history. In the US, there was the Progressive Era, the Gilded Age and, of course, the Great Depression. Former economics columnist to the New York Times and editor of Challenge magazine Jeff Madrick has boldly declared the period between the 1970s and the global financial crisis of 2007/8 the ‘Age of Greed’.
He approaches the history of the period through the contributions of a number of key players who have shaped the ‘Age of Greed’. They include the usual suspects such as Milton Freeman and Alan Greenspan, as well Richard Fuld, Stan O’Neal and Chuck Prince, the bankers who helped bring down financial system in 2007.
In putting together these essentially long profiles, Jeff Madrick displays his considerable talents as a financial journalist in taking highly technical material and turning them into rollicking good stories.
Madrick’s book consists of tales of greed, hubris and folly. His skill as a writer shines through as he uses telling anecdotes to bring each character to life, as well as forensically dissecting their contributions in making the US financial system highly dysfunctional.
Each chapter starts with a brief biography, helping to humanize and explain the motivations of each politician, economist and financier that make up this book.
The Age of Greed can be read at two levels: by the general public, who want to understand more about how we got into the financial mess, and by economists for historical background to the misguided financialization of the US economy.
While greed certainly played a part in corrupting the financial system, building a narrative around a single theme has its dangers, as it relegates other factors that went into weakening the financial system since it broke free from the Bretton Woods system in the early 1970s. Before that date, the regulatory infrastructure and institutions established at Bretton Woods in 1944 ― the IMF and World Bank ― delivered stable economic growth. This all changed in the 1970s, as government slowly lost the will to regulate their economies, aided and abetted by neoliberal ideologues like Milton Freeman, who deservedly gets his own chapter in Age of Greed.
While corporate lobbying played its part in deregulating capital markets in the US, it was also driven by globalisation and market forces. Unfortunately, Madrick deals with such issues much too lightly. For example, in October 1986, the London financial market was shaken up by what was called the ‘Big Bang’, which challenged the supremacy of the US banking system. A key feature of the ‘Big Bang’ was light-touch regulation, a conscious policy to steal business from Wall Street and usurp New York’s position as the financial centre of the world. This pressured US regulators to match what was happening in London. Rather than take the initiative, during the 1970s, the US maintained its regulatory system that was shaped during the New Deal in the early 1930s.
Forty years later, it was poorly adapted for the electronic age and to adequately address the risks of new financial products such as swaps and derivatives that were coming on the market. In addition, a non-banking shadow financial system emerged. It is borderless and skilled at avoiding regulations from any of the countries in which it operated. Another front was by bankers like Walter Wriston from Citibank, who led a crusade to wind back banking regulations. The election of Ronald Reagan, whose presidency ensured the deregulation of major sectors of the US economy, marked the beginning of the end.
By the time I’d finished reading Madrick’s book, I felt that he had certainly succeeded in his stated intention of explaining how finance had triumphed in the US. However, he is much weaker in dealing with how the economy has weakened and remains almost silent on how financialization has become a spreading cancer on the world economy.
So, are we living through the ‘Age of Greed’? Most definitely. Is this ‘Age of Greed’ unique? Most definitely not. Greed has always been part of the capitalist system and always will be. What has been different during the last 40 years has been the inability of governments to regulate the financial system and to channel greed into constructive enterprises. While the ‘Age of Greed’ stands out the bookshelf, Madrick would have served his readers better if he had not resorted to such a populist, simplistic and ultimately disingenuous title.