Have greed, corruption and fear so seriously damaged the great American market system that the nation faces serious long-term economic decline? The evidence supporting that dire possibility has accumulated relentlessly in recent months.
The markets -- whose long-term growth have funded millions of comfortable retirements, swelled the wealth of our social institutions and turned an army of union workers into eager capitalists -- have lost a breathtaking $7 trillion in wealth over the last three years.
Investors have learned that securities analysts for many of Wall Street's most distinguished firms have habitually lied to trusting investors about the true value of stocks; that more than a few landmark corporations have fixed their books to create false earnings and hide losses, and that a horde of business insiders have grabbed billions while thousands of workers have lost their pensions.
Can American capitalism, founded on investor trust and business honesty, survive such serious wounds? The future seems much in doubt these days as we question whether the system that has brought us so much can carry on after such massive abuse. These worries seem particularly relevant as we face the economic jolts and insecurities that have come with the war on terrorism.
An array of books published in recent months raises that question and offers prescriptions for cures designed to save the markets and our futures.
But history suggests that while reforms are advisable, the market system is likely to thrive even in the presence of a certain portion of fraud and corruption. Truth be told, greed has been the essential engine that has driven markets since they began.
Harnessing market greed without losing its benefits mirrors our larger struggle to harness the grinding power of capitalism without sacrificing the wealth it brings.
In his brilliant novel exploring the effects of greed in England's earliest stock trading, A Conspiracy of Paper (Ballantine Books, 442 pages, $14 softbound), David Liss provides insight into both the market's creative potential and its destructive power.
Liss vividly chronicles the fever and fear that accompanied increasingly frenetic trading in the stock of the South Sea Co. early in the 18th century. The value of the stock eventually crashed and many investors lost almost everything.
"The crash of the South Sea stock produced an intense and immediate response," Liss noted in an essay on his book. "There were parliamentary inquiries, unruly crowds, calls for blood in the newspapers -- but in the end, not much came of it....
"Ultimately, the Bubble did not change that much, because, despite the ruin it caused, it did not change the essential fact that anyone with money had to invest in the government or in corporate funds, since not earning interest on money is pretty much the same thing as losing money," Liss noted.
"These financial institutions are committed to divesting our money of value and replacing it with promises of value. For when they control the promise of value, they control all wealth itself," one of the characters in the novel noted.
And Steven E. Ambrose's history of the early boom days of America's railroad industry, Nothing Like It in the World: The Men Who Built the Transcontinental Railroad 1863-1869 (Touchstone, 431 pages, $16 softbound) paints a 19th-century picture uncannily like the Internet bubble of the 1990s.
The early railroad entrepreneurs promised to transform the nation's economy by tying America's isolated regional economies together, just as the Internet moguls promised to transform commerce and communications on line.
And, just as with dot-com IPOs, the rail barons won their fortunes on the issuance of the railroad stock, not from actual railroad profits, which were rare in the early days, despite massive federal subsidies of the transcontinental rail building effort.
In the end, many railroads fell into bankruptcy, just like the internet startups.
But economists now argue that the rail boom and crash set the stage for significant national economic advances. The internet bubble seems likely to do the same, despite the current hard times.
The seeming inevitability of the cycle of market boom and bust does not mean the long struggle to make markets as fair as possible shouldn't continue or that individual investors can't take prudent steps to minimize the negative impact of a market system that is stacked against them.
Former Securities and Exchange Commission chairman Arthur Levitt offers his prescriptions in Take on The Street (Pantheon Books, 288 pages, $24.95). Levitt provides painful detail on all the ways investors have been cheated, by brokers, by stock exchanges, mutual funds and corporations. His answer is tougher regulation and hard work by investors to gather the information they need to make the right decisions on who to invest with and what to invest in.
Market experts Gary Gensler and Gregory Baer are tough and funny in The Great Mutual Fund Trap (Broadway Books, 352 pages, $26) They urge investors to emulate Craig Biggio, the obscure Houston Astro baseball player judged in the 2001 edition of Bill James' famous Historical Baseball Abstract to be the best active major leaguer and the 35th greatest player of all times -- ahead of people like Cal Ripken and Sandy Koufax.
Biggio doesn't hit home runs, they note, but he does do the little things well: "He steals bases and almost never gets caught. During the 2001 season, he became only the fifth player in the history of baseball not to ground into a double play. He managed to get hit by thirty-four pitches, the second-highest total in the twentieth century."
Gensler and Baer argue that the little things count in markets too. They urge investors to ignore investment rankings, to watch financial news for entertainment value only, to realize analysts aren't really talking to you, to say goodbye to full service brokers and asset-based financial managers and, most importantly, to stop trying to beat the market.
Instead, they say, investors should choose low-cost market index funds, make sure their investments are balanced intelligently and then leave their money alone.
Even frenetic cowboy trader James J. Cramer is offering conservative advice in You Got Screwed! Why Wall Street Tanked and How You Can Prosper (Simon and Schuster, 128 pages, $20.) "Above all, be skeptical," he suggests. "Don't be so trusting of those whom you pay for advice. Don't be so trusting of those who give you tips. Trust only history, the history of good managements that pay good dividends. Stop being fooled by brokers, the media, and executives who know you only as a mark."
The problem with all this good advice, of course, is that for many investors it has been almost impossible to take. And it goes against basic self-interest for brokers and money managers who make their money from trading, trading, trading.
When markets are rising, everyone wants a piece of the good times. And there are always market experts there to help investors pursue such dreams.
When markets are rising, corporate executives want to share in the fun with stock options that pay back big.
And when markets are rising, politicians are eager to loosen regulatory restraints and experts are ready with new theories about why economic truths have fundamentally shifted.
All that happened during the 1990s, and now investors are paying the price as they have after every economic bubble from the South Sea bubble to tulip mania and the 1929 crash.
That's the good news -- we've been here before.
The economy may struggle for years. Terrorism and other unsettling global trends may continue to threaten. But regulatory reforms are likely. Investors are certain to be more careful. And, gradually, the market indexes will begin to climb again.
Through it all, investors will be driven by the basic instinct of greed -- to find a way to do better than average, to beat the market, to win a fortune. And that instinct will drive markets upward until, sooner, or later, another bubble will arrive.
Larry Williams is a former business editor of The Philadelphia Inquirer, where he has held a number of reporting and editing positions. He also has served as managing editor of the Akron Beacon Journal and as Washington news editor for Knight-Ridder Newspapers. He is currently an editor at The Sun.