Safety nets for the rich

October 07, 1998|By Harry Rosenfeld

ALBANY, N.Y. -- For openers, the two guys who won the economics prize from the Nobel foundation by all rights ought to turn in their medals and citations and whatever is left of the cash.

Seems the theories, for which they were honored among all those who practice what justly has been described as the dismal science, work better some times than others. Their investment scheme, called a hedge fund, required extremely wealthy partners to begin with. It made them filthy rich in the process, but is now on its knees, kept from total disintegration by a rescue fund put together by distinguished financial institutions and shepherded by the Federal Reserve Board.

On the face of it, investors lost 90 percent of their stake. This is the way the much-vaunted free market is supposed to work. But pause a moment while the supposedly inviolate and occasionally harsh market forces are temporarily suspended on behalf of the especially worthy among us.

Alan Greenspan, Federal Reserve Board chairman, in defending the rescue as absolutely essential to the welfare of the entire world, also let drop a hint that maybe the original investors might be benefiting as time goes on.

This is a great comfort to those of us fretting about where their next $100 million was going to come from.

A sweet honey pot

Just think, these are the guys, or their like, who could have their hands on our Social Security money if the plans to take it wholly or partially private are implemented. Consider what these investment wizards would be able to wreak if they grasped that sweet honey pot.

Actually, there is a clear shortage of economists in our society. We need more of them to explain the processes of the marketplace, and expound on the exceptions as they arise, to guide the simpler souls who thought they had a grasp on the rules of the game, but actually, hah hah, really didn't get the entire point after all. The pluperfect experts' specialty is that they have all the answers after the fact.

On Wall Street, these guys are the masters of the universe. And if they were playing in their own sandbox, who could care? But so often it turns out that whatever scheme they saddled up on begins to threaten the well-being of the rest of the world. Then there is good reason to place a steadier hand on the reins.

Part of the problem appears to be the bankers who bankrolled these buccaneers. Now bankers are supposed to be buttoned up and uptight and extremely careful with money. Yet on occasion some break the usual mold -- you know, the people who lend you money only if you don't need it or own assets that exceed the value of the loan. Along comes a wispy chance to score the odd $20 million or $30 million or so, and out the window they go, head first, on a handshake with an old buddy and golfing partner.

There is an explanation for such behavior. You can test yourself on it. Get in a group surrounding a rich person, and watch how people who are not rich, or considerably less rich, behave. First of all, the rich one is invariably the speaker; the others are there to provide an audience. Attending to whatever the speaker has to say, the eyes of the listeners grow big. Their manner becomes diffident and entirely deferential. They hang on every phrase, endorse every opinion, because nothing commands quite as much respect as the man or woman who owns the loot.

Never mind whether the riches were earned through creative efforts of their own or whether they were inherited from a more capable forebear. If you are rich you are understood to be possessed of higher virtues and capabilities than the less-well-endowed humanity.

Comforted by the reassurance from the highest levels that the financial powers that be are truly only looking after the general welfare, we can face the future with confidence. We know, as surely as we are able to know anything, that when the next high-wire walker stumbles, the net will be in place and taut beneath, to provide protection against whatever fate looms. It begins to become clear that is what is really meant by providing society with a safety net. Now why could we have not seen that in the first place?

Harry Rosenfeld is editor-at-large of the Albany (N.Y.) Times Union.

Pub Date: 10/07/98

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