Alan Greenspan testifies before the Angelides Commission on Wednesday. Without wishing him any personal ill will, let's hope he gets a grilling. We come not to bury Greenspan, but to ... well, actually we do come to bury him. For the greater good of all, he and the radical philosophy he represents must be exposed for all to see.
Paul Krugman observed the other day that Greenspan is "still not a mensch," and that's putting it mildly. Greenspan's engaged in a full-scale media blitz to convince the public that he still deserves to be called the "Maestro," s he once was by an adoring press and DC establishment. But underlying Greenspan's words and deeds, almost invisibly, is a extremist philosophy that has captured financial policy.
Greenspan's a lifelong disciple of Ayn Rand, the anti-government radical who rejected altruism and believed that "Man's ... own happiness as the moral purpose of his life." Charity was contemptible to her. She once wrote, "What are your masses but mud to be ground underfoot, fuel to be burned for those who deserve it?" Rand believed in self-interest as the prime motivating force in the world, and her book Atlas Shrugged celebrates a world where the fortunate refuse to help others.
Greenspan once wrote a letter praising Atlas Shrugged. Echoing his guru, he said that "Justice is unrelenting ... Parasites who persistently avoid either purpose or reason perish as they should." Since that day, more than forty years ago, Greenspan has become the figurehead (not the "fountainhead" - figurehead) for a new form of "establishment radicalism," a white-collar extremism which that has hijacked American economic policy for the last thirty years.
On another occasion, Greenspan wrote: "Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes."(1) Since most Americans support helping the needy and indigent, that's hardly a view which most of them would accept or find admirable.
Randians have a complete right to their views, of course, as do all of those who dwell far outside the political mainstream. But it's worth asking how, in a democratic country, the political institutions that govern our finances came to be so completely dominated by a philosophy that few Americans understand or support.
Someday someone will write that story. But the goals for Wednesday's testimony are much more immediate: The Commission must determine the extent of Greenspan's negligence, and then explore ways to design a regulatory structure that is resistant to unelected ideologues like him.
Greenspan's recent tract in his own defense (pdf) for the Brookings Institution is an instructive read for Commission members, if not for the reasons he might wish. The document's 18,456 words can be summed up in the words "hey, who knew?"
From its very first sentence, Greenspan's paper is startling in its unwillingness to see the truth. He begins, "The bankruptcy of Lehman Brothers in September 2008 precipitated what, in retrospect, is likely to be judged the most virulent global financial crisis ever." The date is convenient, since it's after Greenspan's tenure at the Fed. The prediction that this will be "the most virulent ... crisis ever" seems dangerously optimistic, to the point of naivete.
But what's most striking in that sentence is its confusion of cause and effect. When a former Fed Chairman blames the entire financial crisis on Lehman Brothers, it's like a drunk driver blaming his accident on the wall he struck.
Commission members should ask Greenspan to clarify these remarks. They should also ask him why he continues to place the lion's share of blame on Fannie Mae, Freddie Mac, and subprime mortgages. This conveniently dovetails with right-wing talking points, but fails to address the massive breakdown in prime mortgages or the developing crisis in commercial real estate. Does he see any causes of the crisis that are not either isolated or conservative shibboleths?
Greenspan asserts in the Brookings paper that asset bubbles are inevitable and can't be prevented. That's another fairly radical position for a central banker to hold. It's like having a Secretary of Defense who believes we're incapable of resisting military attack. How did that belief affect the performance of his duties while at the Fed?
The Commission might also ask Greenspan if he intended to justify or defend bankers' unwillingness to withdraw from a runaway market when he quoted Charles Prince of Citigroup (who will also testify this week). Said Prince, "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing." It was Greenspan's job to know the difference between a merry jig and St. Vitus' Dance. The jerking movements of the big banks spelled danger for the economy, yet Greenspan didn't try to stop the music (even though Prince's quote could be interpreted as a cry for just such an intervention).
Greenspan also described the crisis as a "hundred year flood," which prompted Nassim Taleb to say that financial experts who don't plan for rare events are like pilots who don't know about storms. What's more, floods are natural disasters. This crisis was manmade, a fact Greenspan seems unwilling to acknowledge.
In what should be a warning for Commission members on what they may face on Wednesday, Greenspan has a tendency to filibuster - even on the printed page. Take this paragraph: ... (B)y what standard should reform of official supervision and regulation be judged? I know of no form of economic organization based on a division of labor, from unfettered laissez-faire to oppressive central planning, that has succeeded in achieving both maximum sustainable economic growth and permanent stability. Central planning certainly failed and I strongly doubt that stability is achievable in capitalist economies, given the always turbulent competitive markets continuously being drawn towards, but never quite achieving, equilibrium (that is the process leading to economic growth)."
All that verbiage is Adam Smith-ish bankerese for "Shit happens." The Commission should not consider that an acceptable answer. It should grill the former Chairman on "too big to fail," especially this comment:
Beyond significantly increased capital requirements is the necessity of addressing the problems of some financial firms being "too big to fail" (TBTF) or more appropriately "too interconnected to be liquidated quickly.""Too interconnected to be liquidated quickly"? This is obfuscation and misdirection, smoke and mirrors, a defense of the indefensible.
As we said in the beginning, this is not about discrediting one person. It's about understanding the philosophy and mind-set that led to a disastrous collapse. Greenspan will attempt to obfuscate. He will condescend, lecture, and distract. For the sake of the country, the Commission must not allow that to happen. And it should treat Greenspan's answers with all appropriate skepticism. It should bear in mind that when he testifies, the old Objectivist is sure to be acting in his own "rational self-interest."
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(1) From "Gold and Economic Freedom," written for Ayn Rand's newsletter when Greenspan was a devotee of the gold standard. Essays from the newsletter were eventually anthologized in a book called Capitalism: The Unknown Ideal.
Richard (RJ) Eskow, a consultant and writer, is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard blogs at:
No Middle Class Health Tax
A Night Light
Website: Eskow and Associates
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
So it is time for Mr Greenspan to pay the piper and not this time to his tune.
Sorry, you cannot get by with faking that you have the slightest understanding of Ayn Rand. Whatever your views, morally or politically, you know nothing about her. First, Greenspan was not a lifelong disciple of Ayn Rand (never mind that she did not think in such terms). He wound up as the antithesis of what Rand stood for, e.g., laissez-faire.
Man’s own life as his moral purpose comports with the Founders’ “pursuit of happiness.” I gather you have a problem with that.
And, charity contemptible? The Ayn Rand Institute is a charity, one that does not demand sacrifices.
You will not be able to cite a reference for your Rand quotation, because she never wrote that.
The Ayn Rand Institute is not a charity. Its purpose is to popularize the ideas and writing of Ayn Rand.
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Nice try ...
“Can you sacrifice the few? When those few are the best? Deny the best its right to the top and you have no best left. What are your masses but millions of dull, shriveled, stagnant souls that have no thoughts of their own, no dreams of their own, no will of their own, who eat and sleep and chew helplessly the words others put into their brains? And for those you would sacrifice the few who know life, who are life? I loathe your ideals because I know no worse injustice than the giving of the undeserved.” (We The Living, page 80)
I recognize the right to hold differing opinions. But the misrepresentation of Ayn Rand is typical for those in a cottage industry for Ayn Rand bashing. Those who disagree with Rand should cite her correctly--and in context, then proceed with their arguments.
"Examples of non-profit organizations include charities..." (Wikipedia)
Greenspan was introduced to Ayn Rand by his first wife, Joan Mitchell. Although Greenspan was initially a logical positivist,he was converted to Rand's philosophy of Objectivism by her associate Nathaniel Branden. During the 1950s and 1960s Greenspan was a proponent of Objectivism, writing articles for Objectivist newsletters and contributing several essays for Rand's 1966 book Capitalism: the Unknown Ideal including an essay supporting the gold standard.
Rand's political views, reflected in both her fiction and her theoretical work, emphasize individual rights (including property rights) and laissez-faire capitalism, enforced by a constitutionally-limited government. She was a fierce opponent of all forms of collectivism and statism, including fascism, communism, socialism, and the welfare state, and promoted ethical egoism while rejecting the ethic of altruism.She considered reason to be the only means of acquiring knowledge and the most important aspect of her philosophy, stating, "I am not primarily an advocate of capitalism, but of egoism; and I am not primarily an advocate of egoism, but of reason. If one recognizes the supremacy of reason and applies it consistently, all the rest follows."
source:wikipedia.org
Many of us do understand it -- the libertarian mindset -- well enough. It's where you blow up government property when you don't get your way (Howard Roarke). It's where you undertake to dismantle a nation's government, and then, no doubt, undertake to dismantle state and local government. It's where you spend your life defending yourself against the selfish interests of others, because the cooperative urge that caused your forebears to organize common solutions and protections are denied you. It is dog eat dog taken to the nth degree.
The article quote above is particularly poignant, because it highlights the victimization of all who had a different idea of this democracy and had no idea that the rules of the game meant that nobody anywhere should be trusted.
As much as I would like to believe that this era of abuse could end simply by broadcasting the primary role of Greenspan's philosophy, I know that is not enough. It has permeated our government and our culture, far beyond just finance. The lack of trust we have in business, in government, in journalism, in churches, in just about every institution we might have admired or cherished in the past, and in each other, is a destructive toxin that could well poison the lives of Americans for generations.
And that's just what Obama and Bernanke are doing by printing money around the clock for the last year ... delivering totally manipulated markets (not free or fair markets) via the doctrine of "managed inflation ... a very slippery slope. But then Obama thinks himself a good poker player ... hope for all our sakes that his bluff doesn't get called.
The financial system is like the transportation system in its structure, operation and relationship to people and institutions. It was and is as stupid to champion financial deregulation as it would be to champion the removal of traffic lights, traffic signs, speed limits, lane markers, police, vehicle standards and driver education. Those who could afford massive armored vehicles would travel in safety, and the rest of us in fear and trembling. The capacity of the system would be a tiny fraction of what it now is. Welcome to Greenspan's (and others) deregulated financial system!
Alan Greenspan is an example of someone who was put in place based on reputation and personal relationships and kept in place by satisfying those who picked him; the same process which put in place the top executives of most major corporations and Larry Summers. Those who innovated and created the wealth of the Industrial Revolution self-selected and then survived in competitive environments.
The metaphor used - transportation system - is inspired. We have forgotten that "utility" is a useful thing especially when it benefits larger populations. Enron sought to reduce key elements of our power utilities with that form of de-regulation that allowed it to profit unfairly by manipulating the grid - and we all know what happened to that profit - dust in the wind and all we're left with is a crumbling delivery system for electrical power.
Mr. Greenspan views profit as an end in itself. That whoever is able to capture a profit is entitled to do what they want with it. The old fashioned utility knew that wasn't feasible because a regular allocation of profit had to be reinvested in infrastructure. I've had to point out to some of the "free markert" posters that regularly appear in these discussion, that there is a difference between profit and profligacy. Greenspan represents a philosophy that wants to allow the capturers of profit to be able to spend it all without renewing the systems that support us and our economy. It's so much more fun to buy a G-4 than spend the money on new manufacturing facilities.
Fanned.
Your utility example is likewise well taken..... we have, as a nation been living off of infrastructure built up in the 20 years after WWII but much of it not adequately repaired or modernized, and much of the manufacturing infrastructure shipped overseas to enable a temporary period of mass consumption.
Fanned!