USA: Beach Banking Babylon

AUSTIN, Texas -- The economy is a mess. We are now in the second dip of a double-dip recession. ("Looks like a W," say the economists, another reason why economists are not famous for their humor.) Six and a quarter trillion dollars has disappeared from the stock markets. We have so far to go in cleaning up corporate corruption, it makes the Augean stables look like spilt milk.

In the Sept. 23 issue of The New Yorker is an excellent piece called "The Greed Cycle," examining the effects of stock options on corporate culture. The most depressing thing about it is that even though it is a long article, it doesn't begin to cover the range of iniquities and inanities that have been allowed to flourish.

Robert Bryce's Enron book, "Pipedreams," provides more chilling detail. Mickie Siebert, the legendary and impressive head of Muriel Siebert & Co. (and a Republican) has been calling attention to the dangers of derivatives for years. Nothing was done even after Long Term Capital Management's spectacular failure. How many disasters does it take to get Washington's attention?

The now-confirmed manipulation of energy prices in California last summer to as much as 50 times their previous levels presents a whole other set of problems that call for regulation.

A larger view is provided in "Making a Killing: The Myth of Capitalism's Good Intentions" in the August Harper's. Here, we move from accounting shenanigans on the home front to the world of international finance and the $60 billion arms trade in particular. The writer, Ted Fishman, concludes the real weapons of mass destruction in our time are small arms and light weapons, 640 million of them used to slaughter literally millions of people. The role of offshore banking in this trade has long been documented, not to mention offshore banking's role in terrorism, the drug trade, tax evasion, corrupt dictators worldwide, rich people's divorces and other charming specimens of human activity.

So far, the fact that Lawrence Kozlowski of Tyco bought a $15,000 umbrella stand with company money has gotten more media attention than the need to go after offshore banking. In order to go after these banks, we need cooperation from other countries, particularly the advanced industrial nations. That would include Germany, of course, which we're giving the Big Chill.

Here's the play to date: Clinton had set up two multinational efforts to get a handle on offshore banking. Bush came in and promptly dismantled both efforts. After Sept. 11, the need to track terrorist money became urgent, and Treasury Secretary Paul O'Neill was put in charge of the effort, with Congress swiftly providing a new law for him to work with. After several months, Senate hearings indicated that O'Neill was dragging his feet on this effort. I do not think it is out of line to suggest that campaign contributions from the estimated 2 million Americans who keep money offshore probably have a connection to the administration's reluctance.

Poverty is up, unemployment is up, 40 million Americans don't have health insurance, we have allowed unrestrained greed to ruin the economy, and the president wants to know: "What, apart from government, can we do?"

This is not the result of an economic failure in this country -- it is the result of political failure. We have institutionalized "infectious greed" with this right-wing free-market claptrap and the accompanying corruption of our political system through the system of legalized bribery called campaign financing. I have yet to see serious reform proposals emerge from Congress (honorable mention to Sen. Paul Sarbanes).

We need an entire package of reform bills on corporate governance alone, and we need to regulate derivatives and crack down on offshore money. Nobody should expect the Republicans to do anything about this -- they've been getting elected on the free market and deregulation mantra for years.

The most commonly asked political question in America today is, "Where the hell are the Democrats?" The answer is they're also corrupted by campaign financing, but since they are the only ones likely to do anything about this mess, I suggest the gutless wonders that pass for an opposition party in Washington get up off their fat duffs and get to work.

• 106 Money & Politics