A recent New York Times article "Taking a Hard New Look at Alan Greenspan's Legacy" (Peter S. Goodman), did an entertaining job of slamming former Federal Reserve Chairman Alan Greenspan, and for that, I'd gratefully subscribe (if I could afford it).
But there was a pigeon sized fly in the Timesian ointment-- the article calls Greenspan a libertarian with a straight face, and blames the financial crisis, not on Chairman Greenspan's monetary policy lead foot, but on his "faith" in "free markets".
Anyone who spends his entire (much too long) career horsing interest rates up and down according to his own bad forecasts can't possibly be a libertarian, no matter if he once knew Ayn Rand (who said she wasn't a libertarian anyway), and no matter how many times he may have said the words "free market" (undoubtedly with his fingers crossed).
It doesn't matter anyway what ideology Greenspan (or anyone else) may say that he has-- he's betrayed them all, or any combination of them all. Alan Greenspan has always readily taken on or cast off whatever belief best suited his unquenchable narcissism.
Goodman's Times article focuses on credit derivatives, and makes a convincing case that when they explode, they aren't very helpful.
But if former Fed Chairman Greenspan et al weren't continuously stuffing credit into every possible economic crevasse, there wouldn't have been either a need or a mechanism for the derivatives market to come into existence in the first place.
The most entertaining part of the Times piece is the description of the confrontation of Fed Chairman Greenspan and Treasury allies Robert Rubin and Lawrence Summers with then CFTC Chairman Brooksley E. Born. She wanted to review the derivatives market, while this triumvirate instead made the argument that even talking about derivatives regulation could trigger a financial crisis.
The Greenspan/Rubin/Summers argument appears appropriately ludicrous in current light, yet their viewpoint remains prevalent in government, Wall Street, and banking circles. This mental map, which absurdly gets called "free market" is based on:
Assumption #1. Markets are delicately balanced, and the upside down pyramid can get harpooned and yanked over randomly (like by a suddenly uppity CFTC Chairman). This is true, but it's manufactured truth-- the pyramid could balance nicely on its base; we choose to stand it on its tip.
Assumption #2. Once the economy stumbles then government, having in their view not infinite power, but infinite possibilities for power and the country's sharpest minds to develop and use it, can always push the market upright and back to "stable growth". This isn't true-- they mistake the market's strong organic self-correcting predisposition (often even against the head wind of their efforts), for their self-important wish fulfillment. (Picture a pre-historic band of sun worshipping priests, who begin to think that their pre-dawn rituals bring up the sun. If one day they sleep in and the sun comes up anyway, do they change their minds? Of course not-- they'd say, "We sure got lucky that time. Tomorrow, let's do two rituals." The human capacity to shoehorn powerless insignificance into self-aggrandizing puffery is stunning (and I'm no longer talking about the ancient sun priests, but the modern monetary priests, who should have every advantage to know better).)
So, I'll repeat the question that one can imagine Ms. Born asking Mr. Greenspan (and apparently Mr. Summers and maybe Mr. Rubin). "Just what kind of "stable", "free market" system might it be, that will collapse if it's even discussed?"
That would of course be ours, as we're finding out ten years later. However, instead of not discussing it, maybe we should consider a financial system that doesn't balance (upside down) on a pyramid of debt?
Copyright (c) 2008 Les Lafave
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Les Lafave Abolish The Federal Reserve - http://www.themaestrosrep.org The true story of how the term "free market" became history's greatest oxymoron (and some of the morons who oxed it).
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