In the Market We Trust

...Now, if you are a knee-jerk liberal who believes governments are necessarily benign and efficient instruments for fixing the failures of the market and pursuing social interest, you do need the salutary corrective Wriston provides...

...Itreflects, however, a deeper philosophical strain in him...

...Yet it can hardly be denied that the blandishments offered by our banks' jetset-ting emissaries, flush with cash, played a major role...

...But you must part company from him when he implies that governments are doomed to be incompetent victims of a senseless ballooning-out process—or as his eminent friends argue, that they will be captured by special interests who will pursue their own happiness instead of yours, a la Milovan Djilas' "new class...

...they also share the wide grin that success breeds...

...In his essay on "Banking in Wonderland, " Wriston certainly regales us with accounts of the deleterious legislation he has suffered from...

...Wriston is right to deplore the tendency to cry wolf, especially when the fatted calf is at the door...

...Indeed, Wriston writes of Third World indebtedness only to congratulate the bankers for having adroitly facilitated the investment of opec surpluses...

...But you would be dead wrong...

...Again, Wriston is simply too pessimistic about the positive role of the debate stirred up by those who overstate to grab our attention...

...The building of these immense debts was doubtless due to extravagant borrowings by imprudent governments...

...They yield pleasure also because they are crisp, like banknotes fresh from the mint...

...The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding...

...Repayments would now have to be made, rather than financed by new borrowings on an ever-rising escalator...

...You don't have 10,000 lawsuits if everyone agrees on what the law is...

...Their pronouncements have been revised in the light of some 1,200 staff letters of further interpretation . The result is 6,000 pages of regulations...

...Suddenly, as a result, we had a modern equivalent of the German "reparations problem" that Keynes made his reputation on...

...If the world were always on an exponential path, there would have been no problem...

...I, for one, would like to encourage Wriston to embrace the risk, take the plunge, and write more...

...In short, Wriston has little patience for the view that economic efficiency or survival requires what the classical economists called "prudence," i.e., design...

...There is no way the small banks can read these6,000 pages...

...Moreover, public policy cannot be prudently made on the assumption of the best-case scenarios without "betting the company,'' as they say on Wall Street...

...The author's comforting posture could be mistaken as self-serving: After all, he led the financial troops into the Third World during the 1970s...

...Few had thought this could happen without active supranational intervention, such astheestablishmentofa"safetynet"to prod bankers into lending to poor countries strapped for funds...

...The CEO of Citicorp for 17 years prior to his retirement in 1984, Wriston evidently enj oys turning from the world of high finance to his fancy word processor and his laser printer, symbols of the new technologies that fascinate him...

...In fart, the debt crisis, arguably Wris-ton's gift to mankind, illustrates how wrong it is to view governments as necessarily malign, in impact if not intent, and the market forces as deserving of freeplay...

...Isn't Wriston aware that, had the creditor banks not piggybacked on government-created IMF-centered "adjustment" efforts, and next on World Bank-centered Baker Plan supplements to market-determined capital flows to the debtor countries, Citicorp might have faced bankruptcy and he might have been on the dole—not to mention the disruptions these events might have caused in our lives, too...

...He places his trust in the apparently anarchic yet actually efficient workings of the marketplace, which— guided as it were by an invisible hand— magically produces social good from the pursuit of private greed...

...They fail as soon as confidence does...

...Where Rohatyn is "our man on Wall Street" for the liberals , Wriston is a conservative with the Right ear of Ronald Reagan...

...Their interest derives from the clarity of the author's vision...

...Yet at times the wolf is indeed out there...

...As Wriston recycled 0pec-generated petrodollars to South America from the top of his skyscraper in New York, creating the debts that now invade our newspapers incessantly, he was nothing short of euphoric...

...He can recall apt quotations from less likely sources, too...

...The Reaganomics-administered deflation, with its double whammy of high interest rates and falling world income and trade, delivered the coup de grace to Wriston's optimism by breaking confidence in the ability of the debtors to repay...

...The contrasts between them, though, are more compelling...

...His heroes therefore include Adam Smith, John Locke, Edmund Burke, George Orwell, and Milton Friedman...

...I am surprised that as one who delights in quotesmanship, though, Wriston seems to have missed Herbert Spencer's famous remark (in his Essays), particularly relevant to the virtues of competition and the vices of regulation: "The ultimate result of shielding men from the effects of folly is to fill the world with fools...

...But as Charles Kindleberger has emphasized, financial markets are notoriously subject to panics and manias...

...These governmental rescue efforts, so vital to our well-being given the excesses of the banks and their debtors, could hardly have been mounted were it not for the alarm bells the "crisismongers" sounded...

...But then these essays could not have survived moderation...

...In this, he reminds oneof Felix Rohatyn of Lazard Freres...

...The chairman of the Senate Finance Committee is reported to have replied: 'If every man insists on knowing what he's voting for before he votes, we're not going to get a bill reported out by Monday.' Monday clearly had priority over clarity...

...For the central themes running through most of his essays here are that "crisis" and doomsday scenarios are just so much alarmist hype circulated internationally by modern information technology, that they often trigger governmental action having unanticipated and untoward consequences, that governments typically rebuild themselves in a Kafkaesque image, and that unfettered markets and individuals are the necessary guarantors of economic progress and liberty...

...As Rohatyn profits hugely from masterminding mergers, he laments the risk they pose for the economy...

...Reviewed by Jagdish N. Bhagwati Arthur Lehman Professor of Economics, Columbia University...

...Both men write gloriously, with wit and erudition...

...Consequently, at one point there were 10,000 lawsuits in courts throughout the United States based on Truth-in-Lending laws...

...So if you thought Walter Wriston's talents were limited to dealing in cash and debt, and muttering the more profane four-letter words when confronted by failing clients, you could be forgiven...

...Similarly, he is quite persuasive when he cites the history of the 1968 Truth-in-Lending Act: "By 1977, the53 sections of that law had been interpreted 43 times by the Board of Governors of the Federal Reserve, no doubt practicing law without a license...

...He is also at his biting best, in this year of tax reform, when he writes: "At a closed hearing on a tax bill once, several senators complained that they did not understand what they were being asked to approve...

...author, "Essays in Development Economics" Bankers who can write are as rare as economics professors who can make money...

...You probably would not have guessed, for instance, that Justice Brandeis wrote: "Experience should teach us to be most on our guard to protect liberty when the government's purposes are beneficent...