There Must Be Some Way Out Of Here

THE ECONOMIST
July 18th 2002 | WASHINGTON, DC From The Economist print edition

Americans are losing confidence in the economy. Can George Bush stem the slide?

THESE are not happy times for the White House. Share prices are tumbling, consumer confidence has fallen sharply and George Bush's own approval ratings seem to be heading down. For an administration haunted by the ghost of George Bush senior, whose defeat in 1992 was blamed on a sluggish economy, the parallels are becoming painful, not least because the current president's efforts to reassure Americans are also falling flat.

Mr Bush's trip to Wall Street to preach about corporate ethics was widely derided as too little, too late. This week's follow-up, a hastily-arranged pep talk on the economy in Alabama, proved another embarrassment. “This economy is coming back,” boomed Mr Bush. “That's the fact.” Meanwhile, in one of Wall Street's more dramatic days, stockmarkets slumped (though they recovered somewhat after he finished). It was all too close to Herbert Hoover, who famously proclaimed America's economy to be on a “sound and prosperous basis” in October 1929.

Judging Mr Bush's words by short-term movements in share prices is, of course, neither fair nor useful. The real questions are whether the White House has correctly diagnosed what ails the American economy, and whether its policies are right.

Mr Bush's basic contention is that the fundamentals of the American economy are in good shape. This was also the message of Alan Greenspan, chairman of the Federal Reserve, in congressional testimony the following day. At first blush, they have a point. Inflation is low and productivity growth remains surprisingly robust. Much of the excess investment that firms had built up during the boom has been worked off. Consumer spending remains surprisingly solid. Retail sales, for instance, rose 1.1% in June, far faster than analysts were expecting. The Fed has raised its forecast for economic growth in 2002 to 3.5-3.75%.

Yet despite these apparently good fundamentals, consumers are worried. The University of Michigan's consumer-confidence index fell sharply in July, to levels last seen in November. The main reason, of course, is the stockmarket slide (see article). Over the past two weeks alone the Dow Jones Industrial Average has fallen by 6%. The S&P 500 has dropped to levels not seen since October 1997. The technology-laden Nasdaq index is 72% below its peak in March 2000.

In large measure, this slide is the deflation of the 1990s bubble, a point Mr Bush himself hinted at: “America must get rid of the hangover that we now have as a result of the binge...we just went through,” he said in Alabama. But it has clearly been aggravated by the slew of corporate scandals and the loss of investor confidence.

Sliding equity prices could begin to hurt those fundamentals, promoted so assiduously by Messrs Bush and Greenspan. Household saving, in particular, may be found wanting as Americans re-evaluate what they can expect from their retirement portfolios. That suggests a protracted spell of sluggish, rather than buoyant, consumer spending. Capital investment could also suffer, if firms become more cautious about borrowing.

Unfortunately, there are scant signs that the administration will help counter this. In his Alabama speech, Mr Bush promised an “agenda for long-term growth”. This encompassed: fiscal policy (he wants to make his tax cut permanent, whilst forcing Congress to hold the line on spending); trade policy (he urged Congress to grant him “fast-track” authority to negotiate trade agreements); corporate reform (he touted his new Corporate Fraud Task Force, promised more money for the Securities and Exchange Commission, and urged Congress to send him an accounting-reform bill before August); boosting accountability in schools; and terrorism-risk insurance.

This grab-bag of assorted policies hardly constitutes a post-bubble economic agenda. Even if you thought it did, once you start going through the individual bits, the progress is patchy. For instance, the Senate certainly passed a tough corporate-reform bill on July 15th, and Mr Bush welcomed it. The next day Republicans in the House of Representatives promised to dilute many of the measures in the Senate bill (though they did agree to stiffer sentences for corporate criminals).

Nor do the prospects for trade policy look good. The Bush team has been pushing Congress for fast-track authority for 18 months. Legislation squeaked past the House of Representatives last December and the Senate in May. But reconciling the two bills has been difficult. If Congress does not get round to voting on fast-track by the August recess, the proximity of the mid-term elections in November suggests that the politically sensitive trade bill has little hope.

The biggest and most intractable problems, however, concern fiscal policy. Nobody seems to have absorbed how a post-bubble environment might influence the budget. On July 12th, the Bush administration announced that the federal government would run a deficit of $165 billion this year, compared with an earlier forecast of $106 billion made in February 2002. Although the economy has grown faster than expected since February, tax revenues have plummeted. Much of this revenue drop is due to the stockmarket, as individuals' capital gains have turned into losses. If the bear market lasts, so too will those revenue shortfalls.

In these conditions, Mr Bush's main fiscal policy—that his 2001 tax cuts, ostensibly to be reversed in 2010, should be made permanent—is hard to justify. If demand weakens substantially, there may be a case for more tax cuts (or spending) today. But it is hard to see the fiscal wisdom in making future tax cuts permanent at a time when revenues are so uncertain.

On spending, blame needs to be divided between the White House and Congress. Mr Bush talks tough on spending. He has threatened to veto a $27 billion supplemental budget bill that Congress has larded up to $31 billion. However, by agreeing to far larger, and permanent, expenditures (such as the massive farm bill) Mr Bush has lost the moral high ground. Congress, in turn, is closely divided, and short on any procedural systems for fiscal discipline. Finger-pointing and partisan bickering are far more likely in Washington than the confidence-inspiring policies that America's economy needs.

Repeal the 16th amendment and abolish the income tax. Abolish the IRS and take away the citizenship of senior IRS officials and send them to Russia where they'll feel at home. Obliterate federal spending, and start to pay off the national debt in large chunks. Abolish "static scoring" with regards to taxation of any kind. Reinstate and restore the Constitution and Bill of Rights and abolish all laws, treaties, emergency orders and executive orders that have rendered it useless and return to the Constitutional boundaries of our constitutional Republic our founding fathers gave us. Importantly, repeal the Emergency and War Powers Acts. Repeal all laws created by unconstitutional and extraconstitutional devices, such as Executive Order or Presidential Directive. Repeal and abolish all unconstitutional federal involvement in states issues such as: crime, health, education, welfare and the environment, and only God knows how many other intrusions. Social programs such as Social Security, welfare and Medicare must be repealed. So too, do most federal subsidies. Rescind all treaties and International Agreements which are not in perfect agreement with the Constitution. Tell the United Nations to stuff it! The U.S. should disassociate itself from the U.N. and the U.N. should be forced to leave the United States. Destroy all documentation that links the U.S. with the U.N. See Arthur Andersen for details. Alger Hiss, screw you. Furthermore, demand that the federal government refrain from meddling in the business and squabbles of foreign nations, unless there is an imminent threat to the people of the United States. PROTECT OUR BORDERS!! Elect a real small government candidate for President, and the same for Congress. Take memory loss drug to try to forget that most Americans love socialism in about every way and that politicans are simply a reflection of themselves, and, none of the above is going to happen. Now, returning back to reality. Terrorism, shadow government, Stock market crash, federal government crash, Police State, Martial Law, gun-confiscation, FEMA, FBI, CIA, Dictatorship, T.I.P.S., Carnivore, Operation Magic Lantern, Echelon, The Patriot Act, Executive orders too numerous to count, slavery, death, One World Government. It could never happen here. For those of you not just interested in Medicare Part B.

Markets Spooked By Possibility Of Double-Dip Recession

Kiss That Bounce Goodbye

Investors pull $47bn out of equity mutual funds

FEDERAL PONZI SCHEME - Papering Over The Debt

Wobbling
"Compounding the gloom are the revisions made by government statisticians to earlier figures. It now turns out that last year’s recession was significantly worse than previously estimated, and growth in the first three months of 2002 a bit less impressive than earlier statistics had indicated. The backward changes will mean a downward revision to America's spectacular productivity figures and cast further doubt on the “miracle” of the new economy.

The new figures are a blow to hopes that America’s economic recovery is well established. Suddenly, the recovery looks weak and the economy looks vulnerable to further shocks."

Stocks fall hard on Wall St.

Fear of 'jobless recovery' spreads

PGS PGS.OL seen plunging after merger collapse

US Senate Concludes Business, Begins Recess

5,000 jobs at Siemens may be cut

Weak Jobs Data Pressures Dollar

Can she save Japan's economy?

Japan Land Prices Fall for 10th Year

Uruguay police deployed to deter looting amid bank closures

"Another way to make sure that we foster growth and restore confidence is to hold people accountable for misdeeds in the public sector."
George W. Bush - University of Alabama at Birmingham Alys Stephens Center - July 15, 2002.
NOTE: Do as I say, not as I do

Blast from the past:

PROGRAM TRADING - The 1987 Market Crash

Stock Market Suffers Largest Loss in History as Dow Industrial Average Drops 508 Points

The Washington Post
By Peter Behr and David A. Vise
Washington Post Staff Writers
Tuesday, October 20, 1987; Page A01
SOURCE

Partial Transcript:

The stock market was devastated by the worst one-day collapse in history yesterday in a pandemonium of panic selling that shattered all records and swamped stock exchanges around the country and overseas.

The best-known market barometer -- the Dow Jones average of 30 industrial stocks -- plummeted 508 points, five times the previous record set last Friday. The Dow closed at 1738, dropping 22.6 percent, or nearly double the 12.8 percent plunge of Oct. 29, 1929, the crash that began the Great Depression.

More than 604 million shares were traded on the New York Stock Exchange and 239 million on the American and over-the-counter markets, shattering previous records.

Investors lost more than $500 billion in stock market value, according to Wilshire Associates of Los Angeles, which publishes an index of some 6,000 publicly traded stocks.

And the losses were mirrored on markets around the world in a sobering demonstration of the electronic and psychological links that now tie the world's investors together.

John Phelan, chairman of the New York Stock Exchange, called the collapse a near "meltdown" caused by a "confluence" of factors: the market's inevitable turnaround after its long climb, heightened anxieties over rising interest rates and future inflation, and the impact of computerized trading maneuvers.

A remark by Securities and Exchange Commission Chairman David S. Ruder, discussing the possibility of a government-imposed halt in trading, added to the binge.

Other observers said fear was the overriding factor yesterday. "This is a financial panic," said Allen Sinai, chief economist with Shearson Lehman Brothers Inc.

"It is the classical mob psychology that takes over," said Burton Siegel, chief investment officer of Drexel Burnham Lambert Inc. "It feeds on itself. What you are dealing with here is a complete change in perception and psychology."

"This is chaos," said Neil Call, executive vice president of D.F. King, an investment services firm in New York. "Every market in the world is in panic or close to it."
[End of Partial Transcript]

Wave of Selling Sweeps Across International Borders

Wall Street Traders' Ghastly Day - "The government has to intervene,"
"I guess I should learn to imagine anything."

Plunge Stuns Local Investors - "I watched Dad struggle through the Depression and the thing I learned was that you keep liquid, and you don't owe money,"
A broker at another firm spent the day keeping clients from taking rash actions.

"No," she told one worried caller. "Don't sell. Don't do anything." She listened a bit, and said: "Um, hum. Yeah. I know ... But it's not a crash."

After the Fall, a Nation Befuddled - "The difference between a pigeon and an investment banker was that the pigeon could still make a deposit on a Mercedes."
"Since a lot of people thought that fear brought on by the crash could cause a recession, psychologists were asked about fear.

"The main issue around panic is the theme of losing control, of being trapped," said Reid Wilson, a clinical psychologist who has written a book called "Don't Panic: Taking Control of Anxiety Attacks." "We try to cover for the worst possible scenarios, like a fireman facing a burning building. Will these stairs cave in? How stable is the ceiling? We go back in our minds to the past to find something similar. Here we go back to 1929. That in itself brings out fearful thoughts."

The Morning After in America

ON THE EDGE OF A PRECIPICE: The US stock market collapse could trigger the biggest global recession since the 1930s

Second-quarter Results Show Banks In Crisis

Barclays’ bad debt provisions rise 43%

FTSE’s plunge kills fragile optimism

Manufacturing in crisis as rates kept on ice at 4%

Shell sees shares dive on 38% slump in profits

AUG.14: FINANCIAL D-DAY

Fear of 'jobless recovery' spreads

Friday, 8/2 Market Wrapup
Still Watching The Banks
With Brazil now on the ropes, the IMF is considering giving the country more time to repay its $11 billion in loan payments due next year. We now see bankruptcies rising, companies as well as countries defaulting on their debt, credit spreads widening, and one has to wonder, Who is next? There is too much debt and the growth in derivatives has only compounded this situation. Over the last few weeks, worries and concern has started to spread over the nation’s top three banks and their exposure to derivatives. The current exposure exceeds J.P. Morgan Chase’s net equity. Even as large as Citigroup is, their current exposure could cause severe problems for the banks, especially if systemic risks throughout the world’s monetary system start to multiply as we are now starting to see unfold. In fact, given the extent of their derivative book and considering that they are in all of the wrong places, it is hard not to imagine that one of these three banks are headed for trouble, if not all three. The banks are supposed to have risk control measures in place. Yet with derivative books this large, it doesn’t seem possible they can avoid the occurrence of future problems. In the case of JPM, their derivative book of $23.4 trillion and equity base of $40 billion is all that covers $51 billion in potential credit risk, not mentioning the $68.8 billion in derivative risk exposure. These three banks are in all of the wrong places -- corporate loans, loans to emerging markets, and counterparties to a Titanic-size derivative book. Add to this the fact that most of the derivative books of these major banks are of the OTC variety -- which means they are far riskier and less liquid -- it isn’t too imaginative to envision more problems occurring. A lot of the derivative business is based on blind faith and assumptions. These are the assumptions that are built into the derivative risk models that provide the theoretical pricing for much of these complex instruments.

"It's So Derivative"
Bank	Derivative Contracts' Total Value	Current Exposure
J. P. MorganChase	$23.4 Trillion	$68.8 Billion
Bank of America	$9.8 Trillion	$6.9 Billion
Citigroup	$6.6 Trillion	$22.4 Billion
Source: Office of the Comptroller of the Currency as of March 31, 2002 Table courtesy of Matthew Goldstein, "Bank Derivatives Back on Radar," 8/2/2002

It is the complexity of these instruments and the prevalence of problems in the international system that is now causing central bankers and investors to worry. As I said above, someone somewhere is going to come up on the wrong side of these trades. At this time we don’t know who. We just have clues.

Looking Like A Double-Dip Recession
The economic numbers this week are showing the economy is starting to slow down again and that the recession was much deeper than originally thought. On Friday the government reported the economy created fewer jobs than expected and that the unemployment rate remains stubbornly high. Factory orders fell 2.4% in June and many more companies are reporting a slowdown in sales and profits. The economic numbers this week have already caused one major Wall Street firm to predict the threat of recession will cause the Fed to lower interest rates again. Goldman Sachs, which predicted a rate hike because of a strong economy only five weeks ago, is now calling for the Fed to lower interest rates again in order to thwart another recession. Some question this move given the large contingent of foreign ownership in our financial markets. Lower interest rates would now be considered an act of desperation that could cause foreign investors to panic and exit our markets. Currently, interest rates are more attractive overseas, especially in Europe.

This week Trim Tabs reported that money flowed into equity funds in a delayed reaction to a jump in stock prices. Last week $20.5 billion flew out of stock funds. For the month of July nearly $48 billion flowed out of stock equity funds. This follows outflows last month that were close to a record $48 billion.

What we have seen this week and this quarter is a number of clues on the economy and on earnings that call into question a second half recovery. The economy was much weaker than originally thought and shows signs of new weakness. Corporations continue to report weak sales and profits and there are new signs of retrenchment in spending on the consumer front. It is hard to make a case at this point for a second half recovery. In fact, it is much easier to predict the economy will lapse back into a recession instead of a strong recovery. In summary, the primary trend is for the bear market to continue and for the economy to head back into recession. In addition, there is even a greater risk that the Perfect Financial Storm is coming closer to fruition as barometric gauges in the financial system have taken a sudden drop.

Bush Agrees $1.5bn Uruguay Bail-out

In Capital, Business And Politics Firmly Entwined

USA Today
By Judy Keen
July 31, 2002

Hanging in the bar of The Caucus Room, an expense-account restaurant halfway between the White House and the Capitol, is a painting of an elephant, a donkey, a bull and a bear sitting amiably around a table.

The depiction of the symbols of the Republican Party, the Democratic Party and Wall Street in chummy repose is a metaphor for life in official Washington. Politicians of all persuasions, corporate executives and their lobbyists coexist in an insular universe, bound by money, social connections and self-preservation. It's a facet of Washington life that lawmakers don't usually brag about when they're back home.

Now, corporate accounting scandals and their political fallout have unnerved this cozy community. Cracking down on business abuses doesn't come easily to presidents and lawmakers who depend on corporate cash to underwrite their campaigns and to provide jobs for their family members and often for themselves after they leave office. A new law against corporate corruption won't change any of that.

The scene Tuesday in the White House East Room was a singular event. Bush, a former oil company CEO, signed the law tightening business accounting practices and setting tough penalties for CEOs who violate it.

Congress passed the law in a hurry because lawmakers feared voters' wrath, says Charles Lewis of the Center for Public Integrity, a non-profit group that tracks the influence of money in politics. But "both parties are in up to their necks with these folks," he says.

Until the Enron and WorldCom scandals hit the headlines, the bond between government and business thwarted efforts to tighten controls. Two years ago, the accounting industry successfully headed off a Securities and Exchange Commission effort to bar accounting firms from doing consulting work for the companies they audit. Fifty-two members of Congress backed the industry in letters to the SEC.

Enron lobbied the White House to install its favored picks in key regulatory positions. Enron CEO Kenneth Lay contacted Bush adviser Karl Rove and White House personnel chief Clay Johnson about appointments to the Federal Energy Regulatory Commission. Two of Lay's choices, Pat Wood and Nora Brownell, were appointed.

Some of the ties are obvious. Bush's Cabinet is stocked with former business bosses. Vice President Cheney was CEO of Halliburton, an oil-services company being investigated by the SEC for its accounting practices during his tenure. Both major political parties depend on business sources for about 70% of their income. Members of Congress rely on corporations and their lobbyists to underwrite their campaigns. More and more, companies are putting their headquarters in the Washington area. The region is the nation's third largest high-tech hub.

Big business also is entwined with big government in the social fabric of Washington. Lawmakers, federal officials, business executives and lobbyists serve on the same boards for museums and private schools. They spend weekends together on the sidelines of their children's soccer games.

"What you see in Washington today is a totally incestuous relationship," says Scott Harshbarger, president of Common Cause, a public-interest group. "The culture of influence and arrogance between business and politics" makes it hard for politicians to go after their corporate benefactors with gusto, he says.

Others see nothing inherently wrong. They argue that managers who have experience running companies are vital to government because they know how to meet budgets and goals. Business leaders say their relationships with lawmakers are beneficial because they help shape economic policy that creates jobs. "If we were not here to tell the business side, it would have a detrimental effect on public policy because business creates the wealth that this country depends on," says Hank Cox of the National Association of Manufacturers, the nation's largest industrial trade group.

Republicans have long been labeled the party of business. But the current business scandals are also awkward for Democrats.

For years, center-leaning Democrats have been working to emphasize their pro-growth policies. The strategy has worked, if corporate donations are any guide. Over the past decade, for example, WorldCom, the telecommunications company that filed for bankruptcy protection this month, spread its political contributions evenly between Republicans and Democrats. Over the past five years, the accounting industry gave more money to Democrats on the Senate Banking Committee than to the panel's Republicans.

Even in the current climate, lawmakers find it hard to wean themselves from corporate largesse.

A day after voting this month to limit debate on legislation tightening rules on corporations, 16 Democratic senators flew on corporate jets to Nantucket for a retreat with 250 campaign donors. Jets were supplied by BellSouth, Eli Lilly and FedEx. Among those at the island getaway were Senate Majority Leader Tom Daschle of South Dakota and Sen. Hillary Rodham Clinton of New York.

In 1995, 20 Democrats helped pass the Private Securities Litigation Reform Act, which shielded CEOs from shareholder lawsuits. When President Clinton vetoed it, the Democrats joined Republicans to override his veto. Among Democrats who voted to override the veto were two potential 2004 presidential candidates: Joe Lieberman of Connecticut and John Kerry of Massachusetts.

"Big business doesn't have a party," says lobbyist Haley Barbour. Barbour, a former chairman of the Republican National Committee, is an owner of The Caucus Room, where a porterhouse goes for $36.

Washington's elite social network knows no party affiliations. Boundaries between politics and business blur around dinner tables in Georgetown mansions and at horse shows in Middleburg, Va.

Earlier this month, Republican Fred Malek, chairman of a private venture capital company, hosted a dinner celebrating White House chief of staff Andy Card's designation as the Boy Scouts of America citizen of the year. At the head table with Card were Mac McLarty, a chief of staff in Bill Clinton's White House, former Clinton Transportation secretary Rodney Slater and Sen. Olympia Snowe, R-Maine.

No one in the eclectic group talked shop, says Malek, who ran the senior George Bush's 1992 campaign and headed the Office of Management and Budget in Richard Nixon's White House. "There's politics and then there's the other elements of life."

But Donna Shor, a society columnist for Washington Life magazine, says business conducted in social settings is just done more subtly. A casual chat over dinner negates the need for a workday phone call to discuss a troubling aspect of a pending bill, she says.

"Washington is a very small community, and we all swim in a small pool," Shor says. "Our kids go to school together, wives serve on the same charities and boards and our executives give to the same charities. When you spend that much time together, business and personal tend to blend together."

Overt examples of the merger of government and business in Washington are plentiful:

Bush's 14-member Cabinet is one of the most business-flavored ever. Former CEOs are in three posts: Paul O'Neill at Treasury, who headed Alcoa; Donald Rumsfeld at Defense, who chaired Gilead Sciences; Don Evans at Commerce, who was CEO of energy services firm Tom Brown. No president since Dwight Eisenhower has had more than one CEO from a major company in his Cabinet.

Colin Powell has never worked in business but is the first secretary of State with an MBA. Card is a former GM executive who also was the auto industry's chief lobbyist. National security adviser Condoleezza Rice was on boards at Chevron and Charles Schwab. Labor Secretary Elaine Chao was on the boards of Northwest Airlines and Columbia/HCA Healthcare. Army Secretary Thomas White spent 11 years at Enron.

Two dozen of Bush's ambassadors are former company presidents, CEOs, founders or chairmen who donated money to his 2000 campaign. They come from companies that include B.F. Goodrich, Bristol-Myers Squibb and Pace Communications. Presidents often reward big campaign donors with overseas postings.
Invitations to state dinners are another perk for big donors. Bush invited several CEOs to the White House this month for a dinner for Polish President Aleksander Kwasniewski. Among them: Kenneth Chenault of American Express, Vance Coffman of Lockheed Martin and Sanford Weill of Citigroup.
Some corporations with business before Congress pay congressional spouses to sit on their boards. The spouses of Sens. Evan Bayh, D-Ind.; Phil Gramm, R-Texas; Tom Harkin, D-Iowa; and Dianne Feinstein, D-Calif., all serve on corporate boards. Some held board seats before their spouses were elected. Compensation varies widely, though a new report says it averages $152,626 a year.

Susan Bayh is on the boards of E Trade Bank, pharmaceutical company Corvas International and health care and insurance company Anthem. Ruth Harkin is on the board of oil company Conoco. Richard Blum, Feinstein's husband, is on the boards of six companies. Wendy Gramm was on Enron's board until June 6. She also gets director's fees from State Farm.

Among Washington's 20,000 registered lobbyists are former lawmakers and dozens of relatives of members of Congress. No ethics rules outlaw the practice. The most prominent is Linda Daschle, wife of the Senate majority leader — and a top lobbyist on aviation issues. She was deputy administrator of the Federal Aviation Administration from 1993 to 1997. Her clients have included American and Northwest airlines.

Sen. Harry Reid, D-Nev., has two relatives on Washington lobbying firms' payrolls: his son, Key, and son-in-law Steven Barringer. Doris Matsui, wife of Rep. Robert Matsui, D-Calif., lobbies Congress on trade and tax issues. Her husband is on the Ways and Means Committee, which writes tax legislation.

At least one administration official has a lobbyist spouse. Diane Allbaugh, wife of Joe Allbaugh, head of the Federal Emergency Management Agency, lobbies for electrical companies. She was a utilities lobbyist in Texas.

The Democratic and Republican presidential nominating conventions are unabashed festivals of corporate cash. Seven companies, including GM, Microsoft and AT&T, coughed up $1 million each for the Democrats' 2000 gathering in Los Angeles. One, insurer American International Group, gave $2 million. Global Crossing, a telecommunications company that filed for bankruptcy protection in January amid probes of its accounting practices, anted up $250,000. Adelphia Communications, which later disclosed that it guaranteed billions of dollars in loans to the company's founders and filed for bankruptcy protection, gave $100,000.

Eight companies, including GM, AT&T and Microsoft, gave $1 million each to the GOP convention in Philadelphia. Global Crossing and Enron each gave $250,000. Tyco, whose CEO resigned June 3 after being indicted for personal tax evasion, gave $100,000 to the Philadelphia host committee.

The influence of business on government is not new. Woodrow Wilson complained that "the government, which was designed for the people, has got into the hands of the bosses and their employers, the special interests. An invisible empire has been set up above the forms of democracy."

Lewis sees this era's business scandals as a chance for reforms that could crack the empire's foundations by limiting business donations to campaigns, for example.

"Is this a summer moment that will pass? Or is this a serious moment that could lead to a re-examination of how we view government accountability?" he asks.

"What's happening here is public blowback that's terrifying everyone in Washington. Maybe the sleeping beast known as public opinion is starting to awaken."

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