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?
----------------------------------------------------
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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