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Who's Done More Damage, Bernard Madoff or Alan Greenspan?

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Exactly two years ago today, I received a phone call from hell. My financial adviser and close friend, with whom I had invested all of my family's life savings, called to tell me that overnight we had lost 95 percent of our net worth. It turned out that our life savings had been invested in a fund that had been handled by Bernard Madoff. Because we weren't direct investors (I didn't even know who Madoff was prior to his arrest), there was no hope of our ever recovering a penny.

Tragically, what happened to my family overnight is happening to many, many people today, only more slowly. It is one of the darkest nightmares of our times that so many people are losing their homes, their pensions, their jobs, their savings, and any semblance of financial security. The official unemployment rate is 9.8 percent, but if you include the underemployed (those who have part-time work but can't find a full-time job, though they need one), and add in also the huge numbers of unemployed people who have given up looking for work because they feel the search is hopeless, the figure rises to above 22 percent. There are already 19 million vacant homes in the country, with another 10 million foreclosures in the pipeline. The average household credit card debt is nearly $16,000. And the U.S. dollar, which has been the world's reserve currency for almost 100 years, is losing value and appears increasingly unstable.

How did we ever get into such a mess?

Last year, a Newsweek poll found Bernard Madoff to be the most despised person in history. Having been a victim of his fraud, I understand. But some people think that when it comes to wreaking financial havoc, Madoff was a piker compared to the man who was dubbed history's greatest Federal Reserve chairman upon his retirement in 2006 -- Alan Greenspan.

Why? Because Greenspan may be more responsible than any other single human being for the disastrous developments in our nation's economy. Author Matt Taibbi doesn't mince words on the subject. In his new book about how bubbles and bailouts have decimated the U.S. economy, he none-too-subtly calls Greenspan "the biggest asshole in the universe."

Madoff lived high and mighty as a billionaire as long as he kept his Ponzi scheme afloat. Greenspan was revered as long as he kept the party going for the ultra-rich, as long as he kept one bubble after another inflated. But with every party, there's always the morning after. The collapse of Madoff's Ponzi scheme bankrupted not just tens of thousands of families, but many charitable foundations, nonprofit organizations, and hospital and school endowments. The bursting of Greenspan's bubbles, on the other hand, decimated the entire U.S. economy, bankrupting tens of millions of families.

In his biography of Greenspan, appropriately titled Greenspan's Bubbles, MSN Money columnist William Fleckenstein recounts the devastating series of bubbles and crashes that directly ensued from Greenspan's policies. The Savings and Loan scandal was the first tip-off. As a paid consultant for Lincoln Savings and Loan, Greenspan was an ardent advocate of Savings and Loan deregulation. When Lincoln's parent corporation went bankrupt in 1989, more than 21,000 mostly elderly investors lost their life savings.

This was, however, peanuts compared to what was to follow. With Greenspan as the head of the Federal Reserve from 1987 to 2006, and with his policies running the show, the tech bubble was inflated only to burst in 2000, closely followed by the real estate bubble that began to burst in 2007, and the credit bubble that burst in 2008.

Greenspan's policies contributed massively to each of these bubbles, and thus to their inevitable collapse. Like Madoff's Ponzi scheme, they provided illusory returns, not based on any real goods, services or value provided, but rather on the attraction soaring returns have for new entrants into the game.

The costs of each of these market collapses are measured not in the billions but in the trillions of dollars, and they've come so quickly on the heels of one another that we may think of them as business as usual. That's why it's important to grasp that, prior to Greenspan's arrival, the U.S. had been nearly bubble-free for more than 50 years. The only exception? A brief mania for gold and other precious metals in late 1979 and early 1980.

Prior to running the Federal Reserve, Greenspan headed the National Commission on Social Security Reform. The original intent behind Social Security was generous and benevolent. At the height of the Great Depression, our society resolved to create a safety net that would pay modest benefits to retirees, the disabled, and the survivors of deceased workers. It was the formalizing of the long-respected tradition of supporting elders and others who are less able to fend for themselves. The idea was to create less fear and more economic security.

But once Greenspan got involved, things immediately began to change. His policies triggered a staggering transfer of wealth from the lower and middle classes into the hands of the richest members of society. It is not an exaggeration to say that the resulting concentration of money and power in the hands of the few is undermining the economy, corrupting democracy, deepening the racial wealth divide, and tearing communities and families apart.

It was primarily due to Greenspan's proposals that the Social Security tax rate went from 9.35 percent in 1981 to 15.3 percent in 1990. Social Security taxes are borne primarily by the lower and middle economic classes. They only apply to wage income, not to investment income, so people who work for a living pay through the nose while those who invest for a living pay not at all. Fair, right?

Social Security taxes are currently capped at about $106,000. This means that a married couple who earns $106,000 a year will pay more than $16,000 in Social Security taxes. They will pay the same amount that Oracle CEO Larry Ellison and his wife will pay, even though Ellison's income over the past 10 years was nearly $2 billion.

A couple near the bottom of the economic ladder, earning $30,000 a year between them, obviously has nothing to spare, yet they pay $4,590 in Social Security taxes. Billionaire investors and hedge-fund managers, meanwhile, may pay nothing, because they can usually structure their income so that none of it is subject to Social Security or Medicare taxes.

The policies that were implemented following the recommendations of Greenspan's commission have produced, in the last 20 years, $1.7 trillion in new taxes borne almost entirely by the lower and middle class. There might have been some justification for this if the amount of benefits you would eventually receive was directly related to the amount of money you paid into the pool, and if the money was set aside for future Social Security recipients. Prior to Greenspan's reforms, that's essentially how things were done. But thanks to his innovations, this is no longer the case. The money is no longer held separate from the rest of the budget, and has been used instead for other government spending.

It was George W. Bush's first Treasury secretary Paul O'Neill who publicly announced the bad news. "I come to you as managing director of Social Security," he said. "Today we have no assets in the trust fund. We have the good faith and credit of the United States government that benefits will flow."

It's hard to avoid noticing that Social Security is increasingly taking on some of the characteristics of a legally-mandated Ponzi scheme.

Bernard Madoff was a liar and psychopath who recklessly stole tens of billions of dollars. He will spend the rest of his pathetic life in prison. Alan Greenspan, on the other hand, is still widely admired. Not that long ago, he was almost considered a candidate for Mt. Rushmore. He was certainly the most influential proponent of financial deregulation in the last century.

But a generation from now, who will history judge with more scorn?

For practical, down-to-earth advice on how you can thrive in these hard economic times, see John Robbins' new book, The New Good Life: Living Better Than Ever in an Age of Less. John's other bestsellers include The Food Revolution and Diet For A New America. He is the recipient of the Rachel Carson Award, the Albert Schweitzer Humanitarian Award, the Peace Abbey's Courage of Conscience Award, and Green America's Lifetime Achievement Award. To learn more about his work, visit www.johnrobbins.info.