Greenspan 2008: Testifying before the House Committee on Oversight and Government Reform, Greenspan recanted: "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief.... This modern [free market] paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year."
Greenspan's life spanning quotes are the bookends of the dramatic ascendance, dominance and ultimately demise of the radical right's unquestioning faith in unfettered free markets.
Greenspan's pronouncement in 1963 marked an inauspicious beginning of the new Free Market Fundamentalism in the midst of the coming LBJ landslide and Goldwater defeat. But Rick Perlstein's Before the Storm, an account of the roots of the coming conservative movement, detailed how the Goldwater debacle launched a 40-year project to construct a sophisticated conservative movement and create a new American conservative consensus.
For the Free Market Faithful, those early years were dark days of "big government" marked by the Great Society, landmark civil rights legislation, Medicare and Medicaid. Dominant public opinion even drove progressive policy-making well into the Nixon and Carter years with major environmental and workplace legislation and new regulatory agencies.
But the Fundamentalists, with revolutionary zeal, kept their eye on the prize and systematically built the infrastructure for a conservative triumph. Their greatest accomplishment was the shifting of mass public opinion towards a set of agenda-enabling free market beliefs - that the government could do no right, and the market could do no wrong. They posited, successfully, that the laws of markets were as immutable as the laws of nature.
Throughout the period of conservative dominance there were always those who understood the fallibility of unregulated markets. In 1992, the GAO, asked by Democratic Congressman Ed Markey to study the impact of new and complex financial derivatives, concluded presciently that "The sudden failure or abrupt withdrawal from trading of any of these large U.S. dealers could cause liquidity problems in the markets and could also pose risks to others, including federally insured banks and the financial system as a whole. In some cases intervention has and could result in a financial bailout paid for or guaranteed by taxpayers."
In 1994, a bi-partisan bill was introduced in Congress to tighten the supervision of the complex and growing derivatives in the banking industry. The bill would have had the regulatory agencies establish standards for capital requirements, disclosure, accounting and examinations and audits. As expected, the banks argued that no new laws were needed. Greenspan sealed the legislation's defeat (as he was able to do with all attempts to establish updated regulation for the financial industry) by testifying that the Fed had the powers it needed and that a taxpayer bailout caused by derivatives was remote.
Greenspan claimed with the resolute faith of a true believer that "risk in financial markets, including derivatives markets, are being regulated by private parties... There is nothing involved in federal regulation per se which makes it superior to market regulation." There were doubters, but Greenspan, in the heady days of free-market mania, was the ultimate silencer of doubt.
In 2003 Greenspan continued to praise derivatives as "extraordinarily useful." As recently as September 2005, in a speech to the National Association for Business Economics, Greenspan proclaimed his continued confidence in derivatives in free, un-regulated capitalism, the inherent ability of unfettered markets to self-correct in times of economic distress and the overwhelming dangers of government intervention.
Greenspan spoke glowingly about the "development of financial products, such as asset-backed securities, collateral loan obligations, and credit default swaps, that facilitate the dispersion of risk." He claimed, with remarkable lack of foresight, that "these increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago."
The argument was an old one. The inviolability of the laws of the market would generate the information needed to establish appropriate asset value and risk and self-regulate to prevent excessive speculation. Government regulation would, by definition, get in the way of natural market forces.
He did admit that the Fed, concerned about the irrational exuberance of the Tech Bubble, considered and rejected aggressive action to reign in the speculative excess of the late 1990's. They chose not to "risk recession" and decided to "wait for the eventual exhaustion of the forces of boom." Unfortunately, exhaustion turned into global collapse.
Now, just three years later, the economic crises and its obvious roots in a fanatical aversion to regulation led to Greenspan's striking admission that he and his fellow believers had been wrong.
The dramatic collapse of the banking industry finally exposed several key flaws in the Book of Greenspan. First, the entirely self-evident fact that economics is a behavioral science - that economic conditions are the sum total of human actions, emotions, vice and virtues. Ultimately it was a very human vice - greed - that became the paramount driver of economic growth. Greed, inherently incapable of recognizing excess or limits, inevitably leads to economic distress.
Second, predictions that market signals would cause the necessary corrections turned out to be stunningly false in the face of financial instruments so complex that no one could accurately determine the value of assets or level of risk.
Greenspan's awakening signals a turning point for American capitalism. It's the beginning of the end of the fundamentalist free market epoch, underlined by calls from Democrats and Republicans alike for greater regulation, far more government oversight and even public ownership of private capital.
The rise of the free market zealots is a study of how a movement, driven by the clarity of purpose and a commitment to the long haul, created a narrative of the American economy that clouded the steady erosion of American living standards and the death march to the environmental precipice wrought by global warming. Their fall is a lesson for progressives who, shellshocked and silenced by right wing ideological dominance, couldn't see the way back to a more progressive future.
Progressives have plenty to do to undue the damage and fully untangle America from the sway of the free-market faithful. Still, distrust of government is high, the institutions of government have been hobbled and the right wing message machine is still intact even if on the run. Fortunately, the progressive intellectual infrastructure, more developed and more capable than even just a few years ago, is ready to drive a new New deal, focused on 21st century economic and environmental challenges and reinvigorated with 21 century ideas.
to enrich themselves at the expense of the public because they care about their reputation.
And this is based on the naive theory of the idealistic philosopher Rand ? What was Rand's experience in the business world other than as a writer and casual observer ? In communist
China these days, the penalty for corruption is death. Yet, corruption is still widespread regardless.
Is Greenspan unawared of this ?
And he was probably right. Except that he discounted the influence of investment and the investor. The Objectivists have NEVER been able to put a proper perspective on them. When Ayn Rand died, her estate was worth about $400K. Not much, even in the early '80s. She never invested in the stock market. Prpbably because it takes a private company and turns it public. We can see the blind spot. And it is showin in Greenspan's "My god, what have I done?" comments.
The whole "intellectual edifice" collapsed in 1962. Google "Thalidomide" for an example of just how mythical it is for businessmen to "attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings." It's an example Greenspan should have been well aware of in 1963.
Google also "Billy Sol Estes" re: fraudulent securities ...
It was bullshit when he wrote it in 1963, it's bullshit now and it's been bullshit all along. It's nothing more than an excuse for letting rich & powerful corporations rip off everyone with impunity.
Greenspan's nothing but a con-man; an apologist for thieves. Always has been, always will be.
BTW, in 2006, the Bush FDA again granted accelerated approval for thalidomide to be marketed in the U.S. under the brand name "Thalomid"; since accelerated approval worked so well for Vioxx.
New York Times
Published: April 4, 2007
Not since the Roaring Twenties have the rich been so much richer than everyone else. In 2005, the latest year for which figures are available, the top 1 percent of Americans — whose average income was $1.1 million a year — received 21.8 percent of the nation’s income, their largest share since 1929.
Over all, the top 10 percent of Americans — those making more than about $100,000 a year — collected 48.5 percent, also a share last seen before the Great Depression.
See http://www.nytimes.com/2007/04/04/opinion/04weds2.html?ex=1333339200&en=ff9cb6b50f0be804&ei=5090&partner=rssuserland&emc=rss
Alan Greenspan, Ayn Rand, and the ‘Credit Tsunami’
Last week the House Committee on Oversight and Government Reform skewered Dr. Alan Greenspan, the rainmaking economist, for his dominant role as former chairman of the Federal Reserve in what he called the "once-in-a-century credit tsunami". The immoderate capitalist philosopher, Ayn Rand, with whom Greenspan had a decades-long friendship, is being called the inciter of Greenspan's Tsunami, while Randians call her the decrier.
Spit upon all of them and throw them in jail! OIL Goons, Bank Leaches, and the Executive Admin that paved their way. Pitooooey!
http://thetruthburns.wordpress.com/2008/10/24/put-these-wall-street-criminals-where-they-belong/
Now we are getting screwed & our tax dollars (with NO representation) are being thrown at the very people that profited most from the ZERO oversite provided by Ried & Pelosi. Banks are getting billions and still no credit market. Now we must all ask and demand to know why Reid, Pelosi, Dodd, Frank, Bush, McCain, Obama were all smiling when the BS Bailout was signed. The "elected" government people and the billionaires that buy and sell candidates like McCain and Obama as it suits them need to be exposed and we DO need to start all over.
McCain is no maverick and Obama is no product of the people. Both are the results of a system that already knows who will be our next President and the next one and the next one etc... When you study how many big companies contribute millions of dollars to both men, doesn't that tell you something about our system? Rep blasting Dem and Lib blasting Cons - it is all just noise. It keeps us all us little people busy while the power brokers glide through the backrooms dividing up
The overwhelming data in the form of psychological analysis (i.e. - Human Nature) and the historic, un-deniable proof that neo-classic (17th century??) economics failed everytime it was tried. Marx knew this, Keynes and many other "honest" economists knew this.
The base of their argument for "Free Markets"/Neoliberalism can be best described with one analogy:
"Let the foxes run the henhouse"
- NO PUBLIC DEBATE allowed and there was never MSM discusssion of why Keynesianism (which worked for most Americans for **60 YEARS**) was ditched for this bag of banker-dogsh*t.
It didn't take an "economist" to figure out we were getting screwed. Factory workers, janitors...anyone living check to check and could do basic math predicted **EXACTLY this outcome** for Free Marketeering **way back in the 80s**. WOW, they must have been PSYCHIC! Maybe you should invite them down to University of Chicago, Heritage or MIT to find out how all these underachievers were leagues smarter than the academic elite...
This is not ignorance or even negligence, it's FRAUD, embezzlement, slavery leading to the downfall of our nation and it amounts to TREASON. Someone needs to be hanged for it.
Frank and Dodd sat by and politician after politician gave speech after speech about how the economy was going great and more and more people were able to "afford" houses - vote for me!!!
I am old school and we called this spending like a drunken sailor. It is amazing now that when you play back the YouTube clips of all these people saying Fannie/Freddie were fine and all these smiling investment bankers and wall streeters with their multi million dollar bonuses -
Somehow all those people are still smiling. Republicans and Democrats all still sitting where they were for the past two congresses - smiling and cashing their checks.
Meanwhile here we all sit paying for a bailout we didn't want. As terrible as Bush's approval ratings are, Congress scores below and come Nov. 4 we will most likely all trudge off to the polls are re-elect most of them.
shame on us - we should all, conservatives and liberals alike, vote for who ever is new. It doesn't matter what party is in power anymore, so ignore the R or D next to the name and just vote for who ever is not an incumbant ???
I am a republican and I am voting against every single incumbent with out reservation. No party should be above the people that
So, is ECONOMICS a science, or not?
"Shocked, shocked that is gambling going on in here."
Like many smart kids I was intrigued by Ayn Rand's philosophy, or rather "foolosophy," when I was in college. It seemed logical, and it was inspiring in its emphasis on the rugged individual. When I graduated and began working in the real world, however, I soon figured out that the real world was not anything like the world of perfect rationality that Rand constructed inside her own head.
Maybe because he never worked in the real world but spent his whole life in the ivory towers of academia and government, Greenspan never figured this out.
They're only supposed to become good little consumers, cogs in the great corporate machine and think what their corporate masters tell them to.