While a long parade of executives has exchanged tailored pinstripes for orange jumpsuits, an even more deserving group of miscreants have thus far eluded their just deserts—those executives’ Wall Street overlords, who wrote the script for the latest and greatest of bull markets, directed the hucksters, and set their standards.
The excesses of the bull market must be put in proper historical perspective. There were substantial reasons for the “New Millennium” market: Lower interest rates and lower rates of inflation warranted higher estimates of prospective income streams and of an accelerated rate of growth of productivity—all of which, unfortunately, were extrapolated into the future.
Furthermore, the boom in U.S. securities was fueled by two sources of demand that will not be repeated: redeployment of pension assets in equities from 50 to 70 percent of total holdings and a balance-of-payments deficit that has ballooned to an unsustainable five percent of GDP, funded by foreign purchases of U.S. securities.
As the bull market aged, by the latter part of the 1990’s, the growth of corporate profits was bound to slow down. In 1997, corporate profits—both before and after taxes—peaked, and they have been in steady decline for five years. Nor was profit growth for the entire decade particularly remarkable. During the 90’s, corporations’...