Capital Offense: How Washington's Wise Men Turned America's Future Over to Wall Street »

Michael Hirsh is Newsweek's National Economics Correspondent. He has covered international affairs for more than two decades, from several continents, and now writes an online column?entitled "The World from Washington." His 2003 cover story, "Bush's $87 Billion Mess,"?was one of three that earned Newsweek the 2004 National Magazine Award for General Excellence.

For the last thirty years, it has been the mantra of Washington, Wall Street, and economic academia: The fastest way to economic growth is to make financial markets happy. The few economists and government watchdogs who took exception to this theory or pointed out some of the dangerous trends that accompanied it were either castigated, dismissed as cranks, or ignored. How could this happen? How could five successive presidents from both parties pursue and expand an economic policy that hollowed out the American economy and produced the worst economic catastrophe since 1929?

In Capital Offense, Newsweek's Michael Hirsh takes you inside the lives of the key people who gave us this era of free-market finance, beginning with its creator and earliest promoter, economist Milton Friedman, and its adoption by the conservative movement. He explores Friedman's vast influence on the Reagan administration, where his theories first became government policy (known as Reaganomics and Supply Side economics), and follows its continuation through the first and second Bush administrations, with the Clinton era sandwiched in between. In addition, he explains why this disaster-inducing ideology is still alive and well under President Barack Obama.

Hirsh takes you inside high-level, closed-door conversations of top White House advisors and administration officials such as Alan Greenspan, Robert Rubin, Paul O'Neill, and others. He illuminates key figures and lively interpersonal clashes, including the fierce and ongoing conflict between Larry Summers and Nobel Prize–winning economist Joe Stiglitz, a staunch opponent of free-market theory. He also offers crucial insights on why President Obama took so long to work on the economy—and why his policies, while far better than nothing, may not be nearly enough to sustain a long-term recovery.

This solidly researched and skillfully reported exposé catalogs the missteps of three decades of fiscal, regulatory, and financial recklessness, including the dismantling of the Glass-Steagall Act, the S&L debacle, Enron, and the subprime mortgage meltdown. It also explains why the Clinton administration failed to heed the warning sounded by the Asian financial crisis of 1998 and why then Treasury Secretary Rubin dismissed a very explicit warning about the dangers of a new type of financial instrument known as derivatives.

As we struggle to emerge from the financial crisis, Wall Street's continued dominance of the global economy remains a significant barrier to recovery, and America's reemergence as a major manufacturing and industrial power seems ever more unlikely. Capital Offense combines a clear and insightful account of how we reached this point with thoughtful suggestions of what can be done to change course.

Publishers Weekly

There's plenty of blame to spread around for the Great Recession: Wall Street, government regulators, mortgage lenders, and sub-prime borrowers have all, at various times, been held responsible. In Michael Hirsh's view, however, the real culprits are the free-marketeers - economic theorists such as Milton Friedman and Treasury chairmen Alan Greenspan and Ben Bernanke - who placed excessive faith in the self-correcting powers of unfettered markets and failed to anticipate the imminent crisis. Hirsh's understanding of the philosophical and political origins of the credit crunch is considerably broader and deeper than those of most reporters, who merely recount Wall Street's recent failures. Still, it's difficult to directly tie economists and politicians to the mortgage bubble. Milton Friedman's free market principles may have led Ronald Reagan to repeal Glass-Steagall provisions, fomenting the crisis, but regulation alone wasn't responsible for unscrupulous and irresponsible lending or exponential growth in the derivatives market. Still, Hirsh's perspective is valuable, and he acknowledges nuances frequently ignored by others, such as the gender of Washington's derivatives regulator, Brooksley Born, a rare woman among men and thus a "lightweight" to be ignored by swaggering Wall Street veterans like Robert Rubin and Lawrence Summers, who regarded her cautionary pleas for regulation as a failure of machismo. (Sept.)

Acknowledgments

Prologue: The Hippopotamus under the Rug 1

1 The Most Certain Man in the World 29

2 Triumph 51

3 The Stealth Ideologue 67

4 The Rise of Rubinomics 85

5 Larry and Joe 103

6 Portrait of a Contrarian 123

7 Children of the Boom 141

8 The High Tide of Hubris 167

9 The Last Guy at the Alamo 185

10 Reaganites Redux 201

11 The Canary in the Mine 209

12 The King of the Street 219

13 Last Gathering of the Faithful 229

14 Blown Away 243

15 Geithner Cleans Up (with Bernanke at His Back) 269

16 Too Big to Jail 289

17 Larry and Joe (Again) 305

Notes 323

Index 329