IP: Felix Royatyn, An American crisis of unfairness

[Dave Farber <dave () farber net>]

The writer is a former managing director of Lazard Freres, governor of the
New York Stock Exchange and ambassador to France. He contributed this
comment to The Washington Post.

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From: Benjamin Kuipers <kuipers () cs utexas edu>
Date: Wed, 31 Jul 2002 05:56:49 -0800
To: Dave Farber <dave () farber net>
Cc: Benjamin Kuipers <kuipers () cs utexas edu>
Subject: Felix Royatyn, An American crisis of unfairness


http://www.iht.com/articles/65974.htm

            An American crisis of unfairness
                     Felix G. Rohatyn

Monday, July 29, 2002

NEW YORK I do not recall a period of more generalized gloom in the
financial community. The crisis of the New York Stock Exchange in the
1970s comes closest. At that time, the lack of confidence centered
around the shaky capital structures of the brokerage houses (also
disguised by faulty accounting and incompetent management), the
Israeli-Arab wars resulting in an oil embargo and the lengthy bear
market that went with it.

Today all of these elements are present, but it is the financial
integrity of the entire American business community that is suspect,
together with its surrounding support system: its boards of
directors, its accountants, its investment bankers, its lawyers and
the media. This occurs at a time when we had created our own American
brand of popular capitalism.

The $6 trillion of market values that was vaporized by the bursting
of the dot-com bubble and by the general decline of the market that
followed now affects all Americans, if not directly, then indirectly.
The tax increases of state and local governments, together with their
layoffs and other service reductions, are just as much a result of
these events as are the direct market losses of pensions and savings
funds.

Credit is not a science; the word comes from the Latin credere,
meaning to believe. That is the underpinning of our market system,
and when that underpinning is damaged the whole system is in jeopardy.

As stock markets give way, credit markets become tighter and credit
becomes more expensive, or just unavailable to all but the strongest
companies. This situation is not likely to be reversed quickly.
Faith, once broken, takes a long time to repair.

This is taking place at a time when the national economy is
fundamentally on the wrong track.

As a result of the recession, combined with the revenue losses
created by the market declines, the federal budget, which had been in
steadily increasing surplus at the end of the 1990s, now faces
growing deficits. This is also due to the sharply increased defense
spending of the war on terrorism and to the massive 10-year tax cut
of the Bush administration.

From being a country with a budget in surplus, a strong currency and
a decreasing national debt, America has become a country with a
long-term budget deficit, a weakening currency and an increasing
national debt. The huge foreign deficit requires capital inflows of
more than $1 billion per day.

This had been provided regularly by foreigners investing in our
markets, attracted by the strength of our economy and our currency.
This inflow has now been replaced by capital outflows, depressing the
dollar, which may ultimately require significant interest rate
increases to maintain stability. This would have a negative impact on
economic growth and further depress the financial markets.

Dependence on foreign oil continues unabated, despite the reality
that its sources are not necessarily reliable and that it aggravates
considerably our foreign trade deficit. Conservation is a national
security imperative, but no administration, Democratic or Republican,
is willing to face the country with realistic alternatives to do
something about it. These should include an oil import fee and more
stringent mileage standards for cars and SUVs, if domestic politics
would ever allow it. Possibly the most important economic issue
facing the country today is the issue of fairness. The stock market
boom, and its inevitable bust, have created wider gaps between
wealthy Americans and the rest. The outrageous compensation packages
of many corporate managers and the symbols of abuse created by the
Enrons, WorldComs, Tycos and Global Crossings have shaken the faith
of many Americans in the fairness of our system, and convinced
overseas critics that American-style capitalism and globalization
work hand in hand exploiting the less fortunate. This is a
particularly bad time for this to occur.

At a time when we are engaged in an open-ended war on terrorism and
trying to dampen the Palestinian-Israeli conflict, to head off a
potentially catastrophic war between India and Pakistan and to obtain
as much international support as possible for an end to the regime of
Saddam Hussein, the moral leadership of America is critically
important. Fairness is basic to this moral leadership. At a minimum,
this requires curbing the business excesses that have been uncovered
and amending the existing tax cut in order to bring greater benefits
to lower-income Americans. I have always been convinced that American
democracy rested on a platform of freedom, fairness and the creation
of wealth. At a time when we are required to defend our own freedom
and that of many others, when we have demonstrated the ability to
create more wealth than ever before, the issue of fairness becomes
paramount. The impetus to deal with it can come only from political
leadership. Such Republican presidents as Abraham Lincoln and
Theodore Roosevelt understood this, as did the Democrats Woodrow
Wilson, Franklin Roosevelt and Harry Truman.

National security is at present our most important issue. It will
require real sacrifice on the part of all Americans. Americans will,
as always, answer the call, but when it comes it must be seen to be
fair.

The writer is a former managing director of Lazard Freres, governor of the
New York Stock Exchange and ambassador to France. He contributed this
comment to The Washington Post.

Copyright © 2002 the International Herald Tribune All Rights Reserved


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