Delving into the Age of Greed

Four years into a seemingly never-ending financial crisis, it is worth considering the deep roots of this calamity. In her 2011 Pulitzer prize-winning novel, A Visit from the Goon Squad, Jennifer Egan asks how we got here. Jeff Madrick attempts to answer her question in his Age of Greed. The subtitle says it all: “The Triumph of Finance and the Decline of America, 1970 to the Present.”

Most histories of the crisis start in September 2008 or August 2007; some begin with the housing bubble of 2003 to 2006 or, perhaps, if they are especially thoughtful, they go back to Alan Greenspan’s decision to cut interest rates in March 2000 after the dotcom bust. Madrick, an economics columnist for the New York Review of Books, takes a longer view. He recognises that we are suffering the consequences of a thirty-year debt-fuelled bubble. Age of Greed tells the story of the rise of finance and its destruction of the New Deal compact, which had brought America the greatest period of sustained economic growth in its history.

It is worth remembering, now that we are in the depths of the bust, that the boom itself wasn’t that great. Between 1950 and 1970, in America the median worker’s real wage more than doubled. Since 1970, it has barely gone up at all. Men’s wages have actually declined in real terms. The growth of finance has brought great fortunes to a few, but that prosperity has not trickled down to the rest of us.

Madrick begins Age of Greed in 1970, at the tail end of what economic historians call the golden age: the high point of American liberalism, the high point of American productivity growth, the high point of American prosperity, when the now-omnipresent worship of free markets and denigration of government was still the province of loons, reactionaries, and a handful of bankers. Richard Nixon, remember, proposed domestic policies far to the left of any backed by Barack Obama. Madrick reminds us how much our world has changed.

He tells his tale chronologically, through a series of portraits of the businessmen, politicians, and academics who transformed our era. It emerges that in this trio the businessmen wanted fewer regulations, the academics provided the rationale, and the politicians did their bidding. With his stories of Walter Wriston and Michael Milken, Ronald Reagan and Jimmy Carter, Milton Friedman and Alan Greenspan, Madrick gives us a history of the political economy of our time.

During the post-war golden age, banking was boring, tightly regulated, not particularly profitable and yet ably fulfilled its societal function of funnelling savings into productive investment. Back then, policy makers saw creating full employment as their primary responsibility. No more. Today, their overriding goal is to ensure the integrity of the financial system. Protecting bankers has come at a brutal cost to the rest of us. By examining the interaction between financiers, politicians, and academics, Madrick shows us how banking was transformed into a money-making machine that became a parasite on the real economy.

The problem with most short-term analysis of the financial crisis is that it permits the myth that the credit crunch was a "hundred year storm," something no sensible person could have predicted. The sad truth is that this bust followed a string of others: the 1982 Latin American debt crisis, the 1987 stock market crash, the junk bond and commercial real estate crash of the late 1980s, the 1994 tequila crisis, 1997's East Asian debt crisis, the Russian crisis and LTCM of 1998, and the 2000 dotcom bust. Each time, central bankers doubled down, added liquidity and socialised losses, while allowing profits to continue to flow to the financial sector. The current disaster has been brewing for most of our lives. Politicians and academics served the interest of bankers and transformed our world for the worse. If you are going to read one book on the financial crisis, this might well be the one to choose.