An investment strategist at a Fortune 500 Company recent offered FutureOfCapitalism.com the benefit of some wisdom accumulated in his 50 years on Wall Street. We'll call him Sage No. 1. He begins by mentioning a figure from the past, Alan Greenspan. "History is a continuum. One thing leads to another," Sage No. 1 says. "I always come back to Greenspan. When I first met him, it was in 1962," when the future chairman of the Federal Reserve was operating a newsletter about steel industry statistics. "If he had just stuck to that," things might have turned out okay, Sage No. 1 says. Unfortunately, in addition to the statistics, the newsletter also rendered opinions. Greenspan went on to head the president's Council of Economic Advisors during the Ford administration, which wasn't exactly an economic boom.
Capitalism, Sage No. 1 says, is "like religion. Either you believe or you don't believe." Having tried living on a socialist kibbutz, "It has its pros and its cons. It wasn't for me."
Finding capitalist environments is more difficult. "I can't think of an experiment in total real capitalism," Sage No. 1 says. The closest example, he says, would be Britain under Margaret Thatcher.
What, I ask, does it say about our system that one bureaucrat, the chairman of the Federal Reserve, can matter so much to the success of the economy?
Sage No. 1 responds by saying, "There are very few agencies that I actually believe in in a philosophical sense." He gives the Food and Drug Administration as an example of an agency he doesn't believe is worthwhile, observing that for every life saved because of strict regulation, other people are deprived of access to experimental drugs that might help them. The Federal Reserve, he notes, was created as a result of the panic of 1907. The world "existed for thousands of years without the Federal Reserve and from what I understand it wasn't that bad a world," he says, though Sage No. 1 offers with a note of humility that for most of that period he was not alive, so he isn't offering a firsthand account.
President Obama, Sage No. 1 says, scares him more than anyone since Hitler. "He has the characteristics of a demagogue. He is very persuasive." He expresses hope, though, in his anecdotal sense, buttressed by a few recent polls, that "people are losing their admiration for this guy." He gives the example of many Jewish physicians who supported Mr. Obama but "are changing their minds" in response to the president's approach to changing the health-care laws.
Asked whether Wall Street today is a defender of capitalism and free markets, Sage No. 1 replies in the negative. "They are not standing up for capitalism," he says. "There is no free market in America today. There is no pure capitalism in America today. It's a hodgepodge and you end up in a system of what you call protektzia …We don't have capitalism, we don't have communism, we have protektzia."
Sage No. 1, unprompted, brings up Goldman Sachs and its benefiting from the AIG bailout as a counterparty to AIG. "That was so outrageous it was beyond description," he says. Another example is the way Chrysler bondholders were intimidated to advance the interest of the auto unions. Or the way that Bush's Treasury secretary, Henry Paulson, went from issuing public reassurances about the financial condition of Fannie Mae and Freddie Mac to, a month later, placing them into conservatorship.
"We've completely swept away the rule of law," Sage No. 1 says. "It's the law of the jungle, and this wasn't just caused by Obama. It's a sad day for capitalism."
I ask about the push by the head of the Commodity Futures Trading Commission, Gary Gensler, to limit "speculation" in the commodities markets such as oil. "Do I think that speculators cause events? No. They may exacerbate ups or downs. When they try to influence it too much, they go broke," Sage No. 1 replies. He give as examples the Hunt brothers' attempt to corner the silver market and Brian Hunter, the natural-gas trader at the Amaranth hedge fund. Both went bust. "If people want to try and corner markets, let them do it….Every time the price of oil goes up, they try to find someone to blame. …It's ridiculous….It's craziness what's going on."
