Morality of Marketplace Is Fit Subject for Bush : Inaugural Should Set the Tone Against Greed and Sleaze in Financial Arena

<i> Jeffrey E. Garten is president of Eliot Group Inc., an investment banking firm in New York, and worked in the Nixon, Ford and Carter administrations. </i>

When the investment banking firm of Drexel Burnham Lambert Inc. pleaded guilty to six counts of mail, wire and securities fraud a few weeks ago, a sad chapter was added to the excesses of Wall Street in the late 1980s. As he takes office, George Bush should speak out against such crimes.

The Drexel saga, which follows convictions of Ivan Boesky and Dennis B. Levine, among others, is not over. There are civil charges to be settled with the Securities Exchange Commission; the fate of Michael Milken, Drexel’s junk-bond king, is still undetermined. But it is not too early for a President to set the tone for ethics in the financial marketplace, and the upcoming inaugural address would be the right time and place.

There are many other scandals around, of course--bribery of political officials, drug-running in schools, malpractice in hospitals, fraud in the savings-and-loan system. But Drexel-type sins deserve special presidential attention because of their potential impact on all parts of the country.

After all, Wall Street is not just a few square blocks in Manhattan. It is not just young traders who are glued to their computer monitors by day and who race around in BMWs at night. Nor is it simply the battlefield for RJR Nabisco-type deals, in which big egos and big money clash.


What is at stake is the integrity of the nation’s capital markets, the mechanism that sets rates for mortgages and car loans and turns savings accounts into schools and roads. It’s these same markets that deflate or jack up the dollar and hence help determine the competitive position of American industries in the world arena. And it is on these markets that pension plans and trust funds depend for their safety and growth.

In the end, this financial system is no more than hundreds of thousands of men and women, buying and selling bonds and stocks, and making decisions about someone else’s money. What could be more basic for the President than to say, simply, that he expects that the standards of these people should be as high as his well-known expectations for public servants.

In upcoming congressional hearings, we will hear a lot about the conflict-of-interest dilemmas facing the big investment banks in an era of regulatory laissez faire and vicious international competition. It will become clear, too, that Drexel’s sins are not at all typical of Wall Street behavior. But lawmakers will be bogged down in technically arcane issues, and it will take years for new legislation to emerge, if it ever does. In the meantime, the only way to at least arrest growing public cynicism is for someone who counts to address the American people on the basic questions of right and wrong in the financial arena.

In our system that “someone” can only be the President. No senator or congressman has the national standing. The mandate of top regulators is too specialized. Business leaders are lying low.

Morals should not be legislated, but top officials can have an impact by highlighting their importance.

Of course, Bush should not wrestle with the nuances of insider trading, self-dealing, or any specific case such as Drexel; these are matters best left to the SEC and others. But he could express disapproval of greed, which inflicts damage on the public. He could instruct the Congress and the regulatory agencies to give priority to rooting out conflict of interest in the financial marketplace. He could ensure the investors on Main Street--who have been leaving the stock market in large numbers--that in his eyes the financial markets should not be rigged.

Bush said that he wanted a kinder and gentler nation; presumably this means one whose major institutions are fairer as well. He said that he wanted to be known as the education President; surely this extends beyond improving the nation’s science and math curricula to the enhancement of the population’s most basic values.

A presidential message should not upset the markets if it is put in the context of continued support for sensible financial deregulation and the recognition that the overwhelming number of men and women who constitute the market are “clean.” On the contrary, it would be the clearest evidence of a man who understands what it is to lead.

After all, modern-day Presidents have little leeway to do much but inspire. Franklin D. Roosevelt inspired Americans to persevere. John F. Kennedy instilled pride in public service. Ronald Reagan encouraged self-reliance and entrepreneurialism.

But our current President seemed oblivious to ethics in the business world and thereby helped stimulate the worst type of excesses. This gives Bush a great opportunity. He can build on Reagan’s economic revolution, and at the same time distinguish himself by saying “no” to sleaze in the capital markets.