On my first visit to interview Donald Regan as Treasury Secretary in 1982, the former Marine officer and chairman of the investment giant Merrill Lynch, yelled out to me as I entered his huge office; "Lenzner, why didn't you tell me to read Machiavelli's 'The Prince' before I got down to Washington?"
In keeping with Don's aggressively tough and buoyant personality, I discovered during the diatribe of my interview that this forceful character read and re-read Machiavelli's "The Prince" every month. It was, he told me, his personal guide to drawing blood in the nation's capitol, and not his own by the way. Don was a classical warrior armed with Machiavelli's insight.
My recall of this yarn was jogged by the wily coup Wall Street pulled over the weekend by potentially holding the Omnibus spending bill that funds the federal government hostage to a little-known rule in the Wall Street reform act that meant to ban the major derivatives traders from using deposit insurance or the Fed's lending to maintain their high risk bets on the market. A very classic example indeed of Machiavellian realpolitik as exercised in the 21st century.
It reminded me of yet a more damaging and heinous example of secret, behind-the scenes maneuvering of high officialdom in Washington giving Wall Street a massive holiday present. This occurred in the waning days of 2000 when Messrs, Greenspan, Rubin and Summers waited until the Omnibus bill was scheduled to go into effect. In the wee hours of the morning they had prepared and ready to go a bill written by the Treasury staff-- that prohibited the regulation of all derivatives whatsoever.
President Clinton signed the bill into law before any legislator had a chance to read it, before any journalist could report on it, and before any opposition to it could jell. In point of fact, this bill allowed the banks to proliferate risky credit derivative contracts using great leverage in a way that no one knew who owed what to whom, as there was no official oversight to the whole damned circus.
Presto! Comes the rout in 2008 as the $500 billion Credit Default Swaps on the books of AIG threatens total Armageddon and a replay of the great depression. Hundreds of billions, even trillions are required to save Wall Street and so the nation. Neither Greenspan, nor Rubin, nor Summers have ever admitted their gross disservice to financial public policy. But, former President Clinton has publicly articulated a mea culpa by stating on network television that he should never have listened to Rubin and Summers who assured him only a mere handful of people would ever employ these risky securities.
What a likely story. Only a handful of people called investment banks like JP Morgan Chase, Goldman Sachs, Citigroup, Bank of America and Morgan Stanley would ever make derivatives their most major line of business counted up on their balance sheet. Just have a look yourselves and you will see that Goldman's gross derivatives are $600 billion of a $900 billion balance sheet. JP Morgan Chase's are $1.4 trillion of $2.4 trillion. Like that.
A Prince, wrote Machiavelli, "should injure people only if he knows there is no threat of revenge."
That was a major black eye that hurt the nation on many levels, the ramification of Machiavellian stealth and secrecy, a delayed Pearl Harbor on the middle class and the financial markets. Woe is us if it is ever repeated.
