and the Sordid History of Capitalist Investment
A review of the film
Director: Barry Levinson
Story by: Diana Henriques
Starring: Robert De Nero, & Michelle Pfeiffer
Network: HBO
The
new HBO film The Wizard of Lies dramatizes
the life of Bernard Madoff, who created a ponzi scheme that bilked investors of
about fifty billion dollars. As the
story unfolds, we see how Madoff not only bilked his investors, he also ruined
his family. At the end of the film a character raises the question as to
whether Madoff should be considered a sociopath on the level of a mass
murderer.
In
the course of the film, we learn that some of the largest banks in the world
also invested their funds with Madoff. So, this begs the question: Do these
banks share responsibility for Madoff’s scam? My opinion is that a better
question to be asked is: What has been the history of capitalist investment? I
believe that answering this question will place the Bernard Madoff story in
it’s proper context.
The revolution of the thirteen colonies and slavery
The
revolution of the thirteen colonies that began with the Declaration of
Independence initiated some progressive reforms. Before the revolution a
person’s status in life was determined by birth. If you were of the Gentleman
class you had rights that no one else had. The revolution as well as Shays
rebellion, for the first time, established the idea that at least male land
owning citizens had rights.
A
basic contradiction to this state of affairs was that, at that time, the
primary source of wealth came from slave labor. In fact, owning slaves was the
most dependable way of establishing wealth. While chattel slavery was abolished
with the Civil War, the legacy of that system continues to this day.
After
the Civil War, the government adopted the 13th, 14th, and
15th Amendments to the Constitution. These Amendments abolished
slavery and gave every citizen full rights in this country. Then, in 1877 the
Republican party President Rutherford B. Hayes made a deal. He effectively gave
political power to organizations like the Ku Klux Klan in the former
confederate states.
This
meant that in those states the recently adopted Amendments to the Constitution
had little or no real meaning. In fact, racist mobs murdered literally
thousands of people and the government did nothing to indict the murderers.
The labor movement
After
the Civil War working people toiled in horrendous conditions for wages that
barely fed a family. Workers routinely lived in one-room dwellings with their
family. Health care was something that was largely unknown to large numbers of
workers. Because of these conditions many parents told their children to work
in factories so the family might be able to make ends meet. These were the
effects of capitalist investment.
The
labor movement organized a series of strikes over a period of about fifty-seven
years from 1877 to 1934. Then, in 1934 during the years of the depression,
there were three union victories that paved the way for millions of workers to
join unions.
Then,
in 1955 Black workers in Montgomery, Alabama refused to continue adapting to
the segregationist laws of that city. For 381 days they boycotted the busses of
that city demanding the right to sit anywhere they wanted on those busses. This
marked the beginning of the Civil Rights movement that forced the government to
outlaw the segregationist laws of this country.
How
did capitalist investors respond to these events? They literally closed down
factories and moved their businesses to nations where wages are about two
dollars per day. The massive construction boom in China can be explained by the
decision of investment bankers of the world to place their money in a place
where the wages are abysmally low.
The many scams before Madoff
One
of the capitalists of this country in the last years of the 19th
century was Anthony Drexel. Drexel was a mentor to J.P. Morgan who’s bank
became JPMorgan Chase. Because Drexel had investments in factories in
Philadelphia, he needed engineers to manage these factories. So, he started the
engineering school of Drexel University.
Drexel’s
bank became Drexel Burnham Lambert. One of the top traders of this bank was
Michael Milkin who specialized in the seemingly lucrative business of junk
bonds.
In
1989 Milken was convicted of racketeering and securities fraud. While junk
bonds didn’t have a very good name, they were regulated by the government and
Milken violated those regulations. As a result, the $350 billion bank of Drexel
Burnham Lambert was no more. Milken would serve close to two years in a federal
penitentiary.
After
Milken was released from prison he established a charitable trust fund
business. Milken organized a fund that allowed affluent investors to avoid
paying taxes by establishing charitable trust funds. Many of these charitable
trust funds contributed to medical research.
Because
of this relationship, Milken was asked to speak at the 2008 graduating class of
Drexel University College of Medicine in Philadelphia. There were graduating
students who protested Milken speaking at the event since he had served
twenty-two months in prison for racketeering.
We
might compare Michael Milken’s charitable trust funds with the reality of Cuban
medicine today. Before the Cuban Revolution, Cuba was a nation that was largely
illiterate. Today, everyone in Cuba knows how to read and Cuban doctors have
trained thousands of doctors from all over the world free of charge. Cuban
scientists have also invented several treatments for diseases.
So,
on the one hand, Michael Milken’s charitable trust funds in no way have stopped
the advance of poverty in the world. Cuba, while it has much fewer resources
than capitalist investors, has made it a priority of educating and treating
some of the poorest people in the world.
Derivatives
Then,
in the year 1997 Robert C. Merton and Myron S. Scholes received the Nobel Prize
in economics for their method to determine the value of derivatives.
Derivatives are extremely complex bets on the future of the stock market. The
U.S. government felt that this so-called discovery was so impressive that they
allowed derivatives to be completely unregulated.
Today,
anyone can Google the question: How much money is invested in derivatives?
Google’s answer for this question is $1.2 quadrillion. That is
one-thousand-two-hundred trillion dollars.
This amount of money is about equal to twenty times the gross national product
of the world.
What
does all of this mean? Michael Milken and Barnard Madoff went to prison because
they violated the investment laws of this country. Today the entire world
economy is totally dependent on extremely volatile investments that are
completely unregulated.
Conclusion
When
we consider what capitalist investments are, there are two ways to look at the
question. First, managers of corporations are routinely obsessed with cutting
costs. Some of the consequences of this obsession are that today about half of
the world lives on two dollars per day or less, about one billion people don’t
have enough food to eat, and 30,000 children die every day due to preventable
diseases.
The
other consequence of capitalist investments is that they are inherently
unstable. The depression of the 1930’s happened, and the near collapse of the
stock market in 2008 is a historical fact. We should consider that the reason
for these crises comes from the very nature of capitalism. When corporations
are driven to sell more and more commodities, while they also cut costs,
economic collapse is inevitable.
In
fact, we see in the film Wizard of Lies that
Bernard Madoff had an idea of this problem. He saw how the collapse of the
stock market in 1987 liquidated massive amounts of funds. He felt this was
unacceptable and committed fraud in an attempt to bypass the ebbs and flows of
the market. As this film shows, his scheme was a complete failure. As the
history of capitalist investment shows, these investments will sooner or later
have the same fate as Bernard Madoff’s scam.
While
the media in this country argues that Cuba gives us a view of the past with
it’s old cars and old buildings, there is a completely different reality. Cuba
has demonstrated through it’s actions that it is indeed possible to have a
government that makes human needs more important than profits. This is not a
story of the past, but a story of how we can all have a profoundly better
future.
