Class warfare redux

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The easy-dot-come-easy-dot-go bubble cost investors billions of dollars and left hundreds of thousands of employees jobless and penniless. Savings were wiped out. But that was not so much a case of cupidity as it was stupidity on the part of economic pundits and business school pandits who claimed to have discovered "the new economy." Dot.com companies, the pedagogues assured us, could be awash in red ink with no relief in sight and still be healthy with stock selling at multiple times non-earnings. When the crash came, we discovered the difference between genius and stupidity: Genius has its limits.

Then came the second wave of blind-'em-and-bilk-'em. Encon and Worldcon and many other cons picked the pockets of small investors by the hundreds of thousands. The latest financial services shenanigans show the illegal trading schemes of mutual funds have cost investors countless billions of dollars while wealthy investors were allowed to "bet today on yesterday's horse races," in the words of New York Attorney General Eliot Spitzer, who is to Wall Street what Treasury agent Eliot Ness was to Chicago's gangland in the 1930s.

Major banks let favored customers wait until after the markets closed to buy or sell at the p.m. price. Thus, they could trade after a major story had broken that was bound to affect the market up or down next day. Several large mutual funds sold out small investors for the benefit of an investment pool for large, wealthy ones.

Until now, the $7 trillion mutual fund industry was trusted by millions of buy-and-hold individual investors. It was the only segment of the financial and business world that had not fallen into disrepute. Now at least 30 fund companies are splattered by scandal. Subpoenas are fluttering down on the Street like confetti. Illicit insider traders have become so commonplace, they seem to think it's no worse than running a red light with no cop in sight.

Edward J. Stern and his hedge fund, Canary Capital Partners, agreed to settle a case without admitting wrongdoing for $40 million. For Mr. Stern, this was no more than a rap on the knuckles. A specialist in market timing, he was given "enhanced trading privileges" by the Bank of America. The Bank figured he was good for a $300 million loan to take time by the forelock.

There is hardly a day when the British-owned Financial Times and the International Herald Tribune (now a blend of its liberal owner the New York Times and the still more liberal Boston Globe) -- two newspapers read by decision-makers the world over -- aren't reporting Wall Street con games on their front pages.

The emerging global perception is of Wall Street on par with a shady casino where the games of chance are rigged in favor of the rich and where the regulators cut themselves in for a large part of the take. Super regulator Richard Grasso, the head of the New York Stock Exchange, whose mission is to defend small investors, bamboozled his board into authorizing $139 million in take-home pay. He had earned $12 million in each of the past two years. Much of his nest egg was in deferred income on which he collected 8 percent interest. Not shabby considering he would have been lucky to get 1.4 percent if his money had been on deposit in a bank. This was the same Richard Grasso who just a year ago tried to make the NYSE the big broom to sweep corporate America's Augean stables.

This week Mr. Grasso disclosed the NYSE actually owed an additional $48 million in compensation. But in an unusual burst of generosity, he said he would not insist on payment. As long as he continues to have use of a private jet, and NYSE-paid bodyguards, he would settle for a nice round number, or $140 million.

Mr. Grasso's package is the equivalent of more than a quarter of the $526.5 million of net income recorded by the NYSE in the eight years since he became chairman and CEO of a regulatory body where he started his career 36 years ago. It was also several hundred times the annual salary ($171,900) of Fed chairman Alan Greenspan.

The Economist, arguably the world's most prestigious magazine, read by anyone who's anyone in government, business, and the media in both the developed and developing worlds, headlined this week, "Would you like your class war shaken or stirred?" Millions of fleeced investors are angry. Plucked once is something they have learned to live with. But tricked thrice by a new predatory class can only play into the hands of class warfare advocates on the left.

"Follow almost any Democratic presidential candidate around," the Economist said, "and it won't be long before you hear this statistic. In 1980, the average CEO was paid around 40 times as much as the average worker; now the multiple is above 400." Add this to what the Democrats call "tax cuts for the rich"; 6.2 percent unemployment and what the Economic Policy Institute (EPI) described as "the worst recovery for job creation since records began in 1939"; a resurgent Taliban in Afghanistan and the soaring costs of a long-term Iraqi occupation (On Sept. 7, Mr. Bush requested an additional $87 billion for both Iraq and Afghanistan); the breakdown of the road map to peace in the Middle East -- and President Bush begins to look vulnerable.

Retired Marine Gen. Anthony C. Zinni, the former CentCom commander and still a consultant to Secretary of State Colin Powell, was the first prominent figure to mention the V word. Addressing several hundred Marine and Navy officers, Gen. Zinni drew a parallel between Iraq and Vietnam. "My contemporaries," said the general who was severely wounded in Vietnam, "our feelings and sensitivities were forged on the battlefields of Vietnam, where we heard the garbage and the lies and we saw the sacrifice. I ask you, is it happening again?" He was given a standing ovation.

Arnaud de Borchgrave is editor at large of The Washington Times and editor in chief of United Press International.