Let's start with Maurice "Hank" Greenberg, who was instrumental in building what is now probably the world's most reviled corporation, AIG. He resigned as chairman and CEO in 2005, but still it is logical to assume that few people knew more about the company than Greenberg. He kept much of his net worth in AIG stock. He's now lost much of that worth....So how could brokers, journalists, and ex-CEOs have possibly learned about the financial malfeasance that led to the current economic crisis?
I give you one other name: Richard Cohen. He who writes this column had some of his (extremely) hard-earned retirement funds in AIG stock. This was because I was a cautious investor, and what could be safer than an insurance behemoth? Who knew that in faraway London, a division of AIG was fooling around in stuff that virtually cratered the whole company? Not my broker. Not me. Not even Greenberg.
Through better business journalism—despite the trend among television financial networks to boost big business, there were plenty of stories anticipating the foreclosure crisis. Through better brokering and financial analysis—some brokers, instead of simply going along with Bernie Madoff's good reputation, did their research on him and warned clients against investing with the man; other professional analysts did foresee various aspects of the crisis. And through better governance—had officials followed up on the cautionary reports instead of floating along with the perilously expanding financial bubble, at least some of the current crisis might have been averted.
It might be that the farther that cultures get away from a major economic disaster, such as the Depression, the more likely they are to forget lessons of the past and tolerate the abandonment of investment fundamentals. The more that investors abandon fundamentals, the greater the risk of ripoffs and huge losses—but, in the meantime, the delivery of significant gains and the promise of even more gains make it harder and harder to stop the wild party and restore common sense in the mix. Perhaps it's a kind of greed-driven manic-depressive economic cycle that acts upon large numbers of brokers, analysts, investors, journalists, and regulators, when, ideally, those same people should act as a moderating force upon the cycle, preventing the swings toward the dangerous highs of unfounded exuberance and the inevitable hangovers of crippling pessimism.