Alan Greenspan on U.S. Business

The biggest victim of the current wave of U.S. corporate scandals is trust. Alan Greenspan, the chief guardian of the U.S. economy, is not mincing any words about the wrongdoings of U.S. corporate executives. Our new Read My Lips examines his main points.

Editor's Note: The selection of quotes is based in large part on the semiannual testimony before the Committee on Banking, Housing and Urban Affairs, U.S. Senate and the Committee on Financial Services, U.S. House of Representatives, on July 16 and 17, 2002 — unless otherwise indicated.

What is the reason for the general fraud?

“An infectious greed seemed to grip much of our business community.”

How do you explain this greed?

“It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously.”

Who is mainly to blame for the corporate scandals in the United States?

“Manifestations of lax corporate governance are largely a symptom of a failed CEO.”

How much influence do CEOs have on their company's conduct?

“Having served on 15 or 20 boards, one thing that I’ve become acutely aware of is how crucial the issue of what the CEO believes and does is.”

Are CEOs the only ones to blame?

“Lawyers, internal and external auditors, corporate boards, Wall Street security analysts, rating agencies and large institutional holders of stock all failed for one reason or another to detect and blow the whistle on those who breached the level of trust essential to well-functioning markets.”

What made these scandals possible?

“Our historical guardians of financial information were overwhelmed.”

What could have been avoided if these professionals had acted properly?

“Shareholders and potential investors would have been protected from widespread misinformation if any of the many bulwarks safeguarding appropriate corporate evaluation had held.”

Are you concerned about the consequences for the U.S. democracy?

“If you pass laws and do not enforce them, you do an injustice to the democratic system.”

How do you view the future for U.S. corporations?

“Perhaps the recent breakdown of protective barriers resulted from a once-in-a-generation frenzy of speculation that is now over.”

Do you believe that CEOs and others have learned their lesson?

“The stock of what has happened will keep malfeasance down for a while. But human nature being what it is — and memories fade — it will be back.”

Have you always been cautious of human nature?

“Capitalism is based on self-interest and self-esteem. It holds integrity and trustworthiness as cardinal virtues and makes them pay off in the marketplace, thus demanding that men survive by means of virtues — not of vices.”
(Back in 1963)