Before readers start throwing brickbats at the mention of the name of Alan Greenspan, it’s important to remember that he has become the poster boy of the policy errors that lead to our financial mess. And that isn’t an accurate picture. This crisis had many parents, and even though Greenspan was one of the key actors, he was far from alone. Treasury Secretaries Robert Rubin and Larry Summers were also backers of the financialization of the economy, the permissive regulatory posture, and the strong dollar policy.
Greenspan, to his credit, at least appears chastened by the mess helped create. As far as I can tell, very few of the other perps have questioned their decisions.
Greenspan spoke this evening at the Economic Club of New York. Some of his comments show that he has made some considerable shifts from his libertarian, anti-regulation stance. But he hasn’t had a Damascene moment; he seems to be changing his views incrementally.
Nevertheless, it’s remarkable that Greenspan has come out saying that nationalizing banks is the “least bad” policy option, as he did in a Financial Times interview. Now we are seeing role reversal: the loyal libertarian reluctantly admitting the need for regulation and the advantages of taking over dud banks, even big dud banks, while the Democrats tip toe around the idea of doing anything that might ruffle bankers feathers too much.
Note that he stresses, as we have, the need to clean up the financial system for fiscal stimulus to be effective (as in kick the economy into a higher gear, rather than provide a temporary amphetamine hit that quickly wears off). He also sounded a warning similar to Willem Buiter’s, that the US is fiscally constrained and cannot run deficits as large as we might otherwise like without incurring serious sdverse consequences. Buiter has warned of the danger of a collapse in dollar assets. Greenspan seems more concerned about immediate effects, namely, rising long term bond rates (the Fed in theory can suppress a rate rise by buying long-dated Treasuries, but I suspect in practice this policy would lead to private investors and other central banks abandoning the long end of the yield curve, knowing the Fed could not continue this strategy on an unlimited basis, and the Fed having qualms about ballooning its balance sheet to grotesque size. Even at this level, the Fed seems cautious about further balance sheet growth, even though some have argued the Fed would need to expand its balance sheet far more aggressively to combat deleveraging).
From the Financial Times:
The US administration will have to go back to Congress for additional funds to recapitalise the banking system to restore the normal flow of credit in the economy, Alan Greenspan, former chairman of the Federal Reserve, said yesterday….
Mr Greenspan warned that, without a proper banking sector fix, the $787bn fiscal stimulus would provide only short-term relief.
“Given the Japanese experience of the 1990s, we need to assure that the repair of our financial system precedes the onset of major fiscal stimulus,” he said. “Unless we are successful at that, in my judgment, the positive impact of a fiscal stimulus will peter out after its scheduled completion.”
Mr Greenspan said foreign investor appetite for US government debt was not unlimited. “There is obviously a limit to the expansion of US federal debt,” he said. He said the recent rise in long-term interest rates “may be signalling market concerns”.
The former Fed chairman – a champion of laisser-faire principles – said he now acknowledged there was “no alternative to a set of heightened federal regulatory rules for banks and other financial institutions”.
However, he suggested that rather than rely heavily on regulators to prevent the next crisis, the authorities should simply increase the amount of capital banks were required to hold against risks of all kinds…
But at a time when the US Congress is racing to begin legislation on a new regulatory framework for the financial system, Mr Greenspan urged less haste, saying the market was currently imposing strict discipline.
As for the idea of increasing capital levels, it’s a poor second best to rethinking what the financial system ought to look like. And it is truly sobering how little serious thought has been done on that front.
As for Greenspan depicting Congress champing at the bit to reform the industry, that couldn’t be further from the truth. Enacting strict limits on pay to TARP recipients is a far cry from meaningful regulatory reform.
From the Financial Times interview:
In an interview with the FT Mr Greenspan, who for decades was regarded as the high priest of laissez-faire capitalism, said nationalisation could be the least bad option left for policymakers.
”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”…
The former Fed chairman said temporary government ownership would ”allow the government to transfer toxic assets to a bad bank without the problem of how to price them.”
However, he wimped out on cramming down bondholders (note Martin Wolf and Nouriel Roubini, among others, have advocated that step, although Wolf did warn that it would need to be done with ample preparation for temporary disruption):
”You would have to be very careful about imposing any loss on senior creditors of any bank taken under government control because it could impact the senior debt of all other banks,” he said. “This is a credit crisis and it is essential to preserve an anchor for the financing of the system. That anchor is the senior debt.”
Greenspan is a consultant to Pimco, and Pimco has consistently bet that the Feds would be nice to banks (I am told by someone in a position to know that they own a lot of junior bank debt). So this statement may be de facto an admission by Greenspan that he sees nationalization as inevitable and is trying to shape what form it takes.
62 comments
Comments are closed.
Alan Bubbles Greenspan really doesn’t deserve to be heard, none of these people have any shame.
Very ugly.
“As for the idea of increasing capital levels, it’s a poor second best to rethinking what the financial system ought to look like. And it is truly sobering how little serious thought has been done on that front.”
Treasury/Fed should increase capital requirements high enough that the big banks CANNOT meet them to drive the stock and subordinate debt to ZERO, and then nationalize them on the cheap. Pimco wants to play hardball screwing the taxpayer. It’s time to play hardball with the debt markets and screw THEM.
Yeah! I am so far past Greenspan’s opinions that I rejected the premise of each of this statements.
Be gone baby gone!
I think you may have the wrong link in there, Yves. You might have meant this article.
Note that he stresses, as we have, the need to clean up the financial system for fiscal stimulus to be effective (as in kick the economy into a higher gear, rather than provide a temporary amphetamine hit that quickly wears off).
I remain deeply skeptical that there is a higher, better equilibrium that we can kick the global economy into through a combination of fiscal policy and bank recapitalization. The structural issues that have dragged down equilibrium rates persist, and until the prospects for lending and investment improve, or until income rises for households, things will worsen further.
If you say – the fiscal stimulus won’t be effective till the banking system is cleaned up, that will easily be translated into – We need to save Wall Street before we can save Main Street – and coming from Greenspan – you can easily see how ugly it will become.
Far from saving Wall Street, what needs to happen is the mother of all workouts. Bring everything back on the balance sheet, value it independently, sacrifice the goners and leave the scraps for the rational remainders. Then we can revalue and re-start from zero.
Off-topic link
http://www.thenation.com/blogs/jstreet/409157/about_those_f_22s?rel=hpbox
Despite the rough news for F-22 advocates, as covered in the latest Atlantic.. the Administration appears to be letting Gates play out of tune.
“…The first concrete test of the strength of the military lobby and its allies in Congress is the battle over the fate of the F-22 Raptor fighter jet. Military experts agree that the F-22 is outdated and unnecessary.
…
Despite the encouraging rhetoric from the administration, Lockheed Martin won the first round in December, when Gates included funding for four additional F-22s in a draft of the upcoming war supplemental. This is really outrageous. The supplemental hasn’t been sent to the hill yet, but the draft version contains $600 million for four planes that have, by everyone’s admission nothing to do with the ongoing wars. I’m just waiting for all those Republicans who railed against projects in the stimulus that didn’t belong there to get worked up about these four F-22’s. – Christopher Hayes, The Nation”
—
Yves, for those of us that pass on links, of the one’s typically off-topic and meant primarily for your consideration.. email them in or drop them in the comment fields?
I don’t understand. Greenspan doesn’t approve of what banking regulatory ideas?
Accounting principles?
He talks like a banker in the banker’s interests. He doesn’t want off-sheet audits because it would expose insolvency? Well that’s just too bad.
ndk,
Thanks for the catch, fixed the link.
Anon of 11:11, I’m really not sure. I am now getting so many link suggestions by e-mail that they are lowering my productivity (as in they don’t come in with subject headers that clearly say what the link is about, I often pull up 2-6 candidates, then if I decide to use one, I have to go through the mail again to find who to hat tip).
Me thinks someone can hear the reapers coming, and finds religion (cleansing of past deeds after the fact).
Dam I wish this was the onset of the GD, come on mathematicians and quints explain too the good people the difference between Solar trajectories and Galactic in their complexity’s. Model the trajectories involved with the population of the Earth to date compared to the 30’s, the data set is stone age vs nuclear, McNamara would understand now with hind sight, actions under political duress and their compound out comes into the future.
It would be better to structure/define the rebuild than the idea of recouping the past, which has shown it self woefully inadequate, be brave and have heart, for the Planet it self has thrown more dramatic events in our path, yet we persist.
Skippy
Not so off-topic I suppose
Weapons Program rebranded as jobs program (via RealNews Network)
http://www.youtube.com/watch?v=4UXeWEwecyo
hits on recent anonymous pro-military spending ad campaign that has been targeted to appear beside anti-military spending articles (such as the F-22 coverage.) The campaign kicked up after Frank recently appeared on Meet The Press to highlight the F-22 and the GOP’s hypocrisy on govt spending when it comes to the DOD, was forecasting anticipated republican talking points for when the military industrial lobby’s pressure coalesces with constituent frustration over the GOP’s failure to propose an alternative stimulus plan.
Also includes reference to a UMass study showing military spending 2nd to last in job creation behind personal consumption tax cuts, as well as excerpt from Greenspan testifying before Barney Frank, answering questions and responding in agreement w/ Rep. Frank that military spending is a dud.
“A group of economists at the University of Massachuessetts did a study two years ago looking at how many jobs could be created from a billion dollars of military spending versus the same amount spent on health care, mass transit, home weatherization, and education and personal tax cuts .. what they found was that military spending was the nearly worst job creator among all those categories. the only thing that worse, was cutting taxes for personal consumption.”
Miriam Pemberton, Military Analyst, Institute for Policy Studies
—
The 1999 Frank/Greenspan exchange
Frank:”…military products, as you previously said here, tot he extent you could put those same dollar in other areas, maybe education and job training, maybe into transportation, you are dollar for dollar likely to have a better economic effect. Is that an accurate reference to what you are saying here?”
Greenspan: “Yes it is, Mr. Frank”
Frank: “To the extent that you can reduce military spending consistent with your security needs, that is going to have a good economic effect?”
Greenspan: “Yes”
—-
All four branches met or exceed their recruiting targets for January…
“As people lose jobs, the military becomes the employer of last resort.”
The thing that is consistent about Greenspan’s direction, then and now, is that he is talking the banking industry’s book.
“The thing that is consistent about Greenspan’s direction, then and now, is that he is talking the banking industry’s book.”
I hope greenspan, summers, rubin, and geithner make a mistake that allows us to send them to jail for embezzelement, criminal conspiracy, perjury, or something else. They need jail time for helping wall street instead of the working man. Sending some of these bankers who ping pong back and forth between industry and regulator is the only way to make these people afraid of selling the public up the river.
Irony Alert… “Greener Bullets Use Nontoxic Alloys, Won’t Poison Soils’
http://www.huffingtonpost.com/2009/02/17/greener-bullets-use-nonto_n_167489.html
http://www.bizjournals.com/kansascity/stories/2009/02/16/daily4.html
(Second link is the shorter, but original, article.)
Yves, did you make mention of, or find any articles on GOP strategy or infighting, after Lindsay Graham floated nationalization on Meet The Press?
Some local press in NC w/ BoA execs “my gosh”-ing Grahams remarks.
http://www.charlotteobserver.com/business/story/542119.html
You can’t stop a nuclear meltdown with drunks in the control room, and for that matter, even if sober bankers are placed into the burning wreckage — those poor bastards probably will be fried from radioactive derivative goop; Paulson and Bernanke had a chance to stop the meltdown, but they loved their banker friends more than America. I think I saw that in an Alan Greenspan movie?
If we could get Volker and him on the same circuit, maybe Obama would dump Timmy before it’s too late!
That is a very fair and balanced report on a libertarian by a democrat. I am a libertarian and a republican and readily admit some of my life long assumptions are in tatters. I would agree tha libertarians have so far been less beholden to their ideals than others, but I think this had to be true given that it is a minority group that got a lot wrong. the solid liberals are a third of the populace, and so far have been more glib than flexible, but I bet that will change too. Political boundaries are moving, and I appreciate intellectual honesty wherever it comes from, and however late it arrives.
I actually gave Greenspan a fair shot, until I heard he was a consultant to Pimco, which means everything he is advocating is self-serving.
How would he, as a consultant to Pimco, react to simply allowing banks to fail? Not too well I suppose. But that's his self-interest speaking — he is employed by bond-holders and likely holds bonds himself.
I don't hold any, senior or otherwise, so I could care less if they fail, much the same as if the mom & pop donut shop on the corner failed — in fact, I'd care more about the donut shop failing.
Nice post. But can I ask you what you mean by kicking the economy into a higher gear. Are you in favor of reestablishing the status quo of low savings and high consumption?
When one of my daughters was working at the Fed some years ago as a research associate, I asked her what the economists she was working for thought of Greenspan, and she replied that he was highly respected. As she is quite liberal, and wouldn’t have been as comfortable there as she was had her superiors not also have been so, I thought that quite interesting.
Based on what he wrote in his book after leaving the Fed, and gut-feel from listening to interviews, I sense that he has been not so much an ideologue as an idealist.
Were he a greedy man, he could have left the Fed long before he did and made tens of millions a year.
Several times I’ve read that the working environment at the firm he ran before going to the Fed was excellent.
I think it’s quite plausible that he truly didn’t believe there would be such shortsightedness and irresponsibility among top management in the financial system.
How many men of Greenspan’s power and stature have ever admitted as he did at the Congressional hearings last October that they have been seriously in error? The contrast with the other big-shots in this debacle is extreme.
Bg, for those libertarians who are sincerely concerned with protecting the individual and his community from the abuse of power, I don’t think the answer lies in neutering government, as that only paves the way for the market to grow in the power vacuum, and there are even less restraints on power in the market than there is on government. At least with government you have a Bill of Rights, and periodic, direct, elections.
The market and the government are like to opposing magnets: reduce the strength of one, and the iron filings (power) does not fall to our level, but immediately collects around the stronger magnet.
I think the answer to this dilemna is not to declare war on government, or even the market, but to build strong civic institutions…collective organizing via unions and union-backed employee councils. This is what tames both the governments and the business community in Europe…there tends to be a mixture of fear and respect towards, again, unions and employee councils, in those countries where they are strong.
I think the mistake that libertarians made was in forsaking collective organizing for individual action. No individual can ever win against Wall Street and DC; no loose “confederacy” of individuals will ever have the power to do the same. It all comes down to collective action.
Anyway, that’s my humble .02.
“A group of economists at the University of Massachuessetts did a study two years ago looking at how many jobs could be created from a billion dollars of military spending versus the same amount spent on health care, mass transit, home weatherization, and education and personal tax cuts .. what they found was that military spending was the nearly worst job creator among all those categories. the only thing that worse, was cutting taxes for personal consumption.”
Miriam Pemberton, Military Analyst, Institute for Policy Studies
Some people need to think for themselves. This statement doesn’t paass the smell test. Why would military spending be any less stimulating than any other? I would love to see the assumptions under this study. I guess we would rather have ditch digging jobs rather than the high tech jobs in defense industries or the professional training recieved by he new recruits.
I would not interpret Greenspan’s recent comments as reflecting a change of heart, nor would I would expect there to be a Damascene moment in the future. Greenspan’s willingness publicly to reconsider his earlier views seems to track very closely with the investment positions of firms such as Pimco and John Paulson which he advises. The only remarkable aspect is that he continues to viewed as somehow “independent” of these influences. Greenpan of all people would be the most likely to point how silly it would be for one to expect him to opine/advocate in any way other than one which aligns with his personal interests.
Rumsfeld eliminated the Crusader and Comanche programs because they did not align with current defense objectives. These were multi billion dollar programs that were far along in the acquisition process. This was unprecendented by any Defense Secretary. By the way, the Crusader program defense contractors were primarily within Republican districts.
Humble .02,
“Bg, for those libertarians who are sincerely concerned with protecting the individual and his community from the abuse of power”
I appreciate your seeking common ground in our crisis. I would say your intro paragraph does not represent the libertarian ideals (not that we are allowed to think alike anyway). I for one do not feel I am abused by power, nor do I feel threatened by government or labor movements. I think the working ideal is belief in the individual, and that restrictions can lessen the society.
Libertarianism failed for me, because it is a form of efficient market hypothesis. We believed that if left alone, the systems will self optimize. They haven’t.
We are not standing at the door waiting to hand the keys to Nancy Pelosi, but we want the right outcome. Greenspan is one of ours, and he poured gasoline on our Minsky fire.
The political lines are moving, and libertarianism was the traditional liberalism. And I would play on Yves team anytime.
I won’t hold anybody responsible till the Democrats in Congress are prosecuted. They obstructed any investigation into this whole financial mess just to protect Fannie and Freddie Executives. If they were not so corrupt, we might have gotten to the bottom of this mess in 2004 and avoided this disaster. How can anyone deny it? You have you tube video of Barney Frank obstructing any type of examination.
Well I don’t know the answer, “military spending” is a rather broad category.
Just based off of the limited information we have there, my list would be (from largest to smallest): mass transit, health care, military, home weatherization, and broad-based tax cuts.
I have no idea what they mean by “education”: is that money to fund teachers…construction…are we talking primary schools, or wiping out student loans? Those who all have dramatically different effects.
Oh, now I understand where you’re coming from…thanks for the clarification BG.
“Libertarianism failed for me, because it is a form of efficient market hypothesis. We believed that if left alone, the systems will self optimize. They haven’t.”
Please give me the examples of government controlled economies working. The Soviet Union? Cuba? Western Europe with their chronic unemployment? Why is Europe in trouble with all of its regulation? This crisis was caused by the Government and their solutions are going to make it worse. Study Hoover and FDR and tell me if you think government intervention works. It took the death of 60 million people and the desruction of most of the civilized world to get us out or that disaster.
Anon 12:57, about the UMass study
If it smells fishy and you’re curious, google it and find out. The answer is at your fingertips… with it you might have something to say that would be worth our time. Don’t care what you suppose.. what do you know?
Greenspan did make a Congressional appearance not long ago (can’t remember the reason he was summoned) and he really did look chastened and apologetic. I haven’t seen any bank or auto industry executive look remotely as contrite.
So both theories can be correct: yes, Greenspan is carrying water for his new masters, but he still appears to recognize the error of his ways.
He's hilarious…always trying to get out in front of the parade. First thought: What an *&%$#@!
Second thought: Yup!
NATIONALIZE THEM! Wipeout the investors both stock and bond, marginalize the bad debt, recapitalize and sell the Good Bank at a price the Tax Payers make a handsome profit.
Yeah right! (Next Fantasy) By time the government is through screwing things up, everybody will be wiped out including the tax payers!
We’ll be lucky if we make it to July 15th 2009!
It’s a very confusing to present, as it is done in the FT article as well as in most posts, Alan Greenspan as a libertarian ; although he often advocated to act as such, he in fact never did, and always corrupted the behaviour of the market by his interventions.
Please refer to the following link for a clear understanding of the libertarian views about Alan Greenspan.
http://mises.org/story/3244
The actual mess is not the result of a “laissez-faire” liberalism, but more of unsound and unfair interventionism.
12:57 AM,
I think you’re not taking sectoral levels of capital intensity into account, i.e. military spending is biased towards firms with higher than avg capital:labor ratios,,,which means the same spending results in relatively fewer jobs than the case in less capital intensive sectors.
Same time, by supporting or pushing those levels higher it transforms from somewhat stimulative to the contrary — sectoral disproportionalities are exacerbated.
“I think you’re not taking sectoral levels of capital intensity into account, i.e. military spending is biased towards firms with higher than avg capital:labor ratios,,,which means the same spending results in relatively fewer jobs than the case in less capital intensive sectors.”
You’re not seeing the big picture. The goal is to raise the requirements so high it is impossible for the big banks to meet them, and then put them into receivership where shareholders are wiped out and creditors get stock for equity. No matter how illiquid bank assets are, if ALL creditors (except depositors) are forced to take common equity for their debt, the bank WILL be solvent.
In “The Age of Turbulence,” Greenspan states that bank regulators are simply not equipped to manage bank’s regulatory positions. Given the performence of the Fed and SEC over the last few years, is there any doubt that he is correct? Greenspan also states that this view is widely held within the Fed.
The banking industry has been heavily regulated in the past, through multiple agencies and many arcane rules. That regulation spectacularly failed. The position that “we need to regulate” is as utterly discredited as the pure libertarian one.
jult52
Glad that Greenspan is now jumping on the band wagon! Yet I wonder why we continue to talk about nationalization when we do not need it and non-state ownership is possible. Stress test and testing new lows: are we or banks under test, stress or stress test?
“Some people need to think for themselves. This statement doesn’t paass the smell test. Why would military spending be any less stimulating than any other? I would love to see the assumptions under this study.”
It passes the “smell test” and the reason for it is quite obvious. The output produced by military spending has very little economic or social value. It’s literally stuff that’s supposed to sit there until it’s blown up or used to blow something up while investing in education, infrastructure etc. yields output that itself will contribute to the economy.
In addition to that, the USA’s insane level of military spending has the unpleasant result that a lot of science and engineering talent is employed in producing these economically useless goods. These people could be put to much more productive use elsewhere.
Every economic model that I’m aware of that has ever looked at defense spending has come to the conclusion that military spending is pretty much about the worst use of public money – it’s all about opportunity costs. You’ll get more for each public dollar spent in virtually every other area.
is it not the height of irony to see Abby j Cohen questioning Greenspan? Two of the most public and repeated failures on wall street.to add insult to in injury hormatts was saddled up next to abj.
As for geenspan he is of course is more to blame than Rubin although he is a disgrace as well. Greenspan led an independent central bank last time I checked. And he all but admitted that the alternative was a 10 percent rate. sorry. Apologizing for alan in any form is just bad analysis. He was in place long before Rubin and the policies of moral hazard strong dollar and printing were firmly entrenched. Yves you have this wrong.
For the 20 largest banks, conduct a complete audit over the next 30 days. Divide mostly into 2 categories: solvent with adequate capital – which we let continue operating with the restrictions below until they are “very well capitalized”. Insolvent – the current shareholders are wiped out. Most likely, all the preferred shareholders are wiped out. All the depositors under $500,000 would be made whole. The current debt holder and large depositors would have those claims wiped out, but they would be given the new common stock. In almost all cases, this would make the banks solvent. If not, then the federal gov’t would have to make the capital infusion to make the small depositors whole and sell off the assets.
I really don’t want these banks nationalized. The debt for equity should be a serious recapitalization.
1. Instruct each restructured bank how much new, private, preferred stock they need to raise to be well capitalized and if they don’t, then liquidate them
2. Until they are very well capitalized (see below), no dividends or share buybacks.
3. Establish that the standards for that capital are progressively higher based on the size of the banks to encourage them to shrink themselves.
4. Until a bank is very well capitalized, all compensation over $350,000 must be paid in restricted stock (becomes unrestricted once the bank is very well capitalized). Since restricted stock is not a cash outlay, it never reduces the capital adequacy of a bank. Thus, no need for a dollar limit set by the gov’t. Leave that to the board and the shareholders.
5. Permit a bank to pay any large claims under a Credit Default Swap with preferred stock.
Note – well capitalized is the industry standard. Very well capitalized is the higher standard for any bank with a balance sheet over $100 billion.
I think can of more new rules needed going forward, but this is the crux of wiping out a lot of debt, and wiping out debt in a socially acceptable manner is probably the most important thing we can do to get out of this.
This could be disruptive in the short run, but it is an essential part of not losing a decade.
Hahahah,
Those who think Greenspan is the “high priest of laissez-faire capitalism” have holes in their heads. The very existence of the Fed and its micro-mismanagement of interest rates is in direct conflict with capitalism.
-Mish
Won’t stop people from dishonestly using Greenspan to smear capitalism, though. Especially not the FT.
I applaued Yves’s perceptiveness in noting that at least Greenspan acknowledges that mistakes were made.
I also agree that we need more detail from him on what the financial and banking systems should look like.
I favor the Taleb approach: basic depository functions as a utility or gov-owned service.
Yves’ views on this, if formed, would perhaps be the subject of an important post.
A Tribute to Gullibility
(Slime Ball Should Be On a Rope)
The rationale that justifies the FED,
Was created long ago,
The lie has been repeated so man times,
That everyone thinks its so …
The chairman of the FED is the Visible Hand,
That seeks usury’s golden mean,
By guiding the forces of the Invisible Hand,
In the open so that all can be seen …
But the hand of the FED is now opaque,
And the Invisible Hand is constrained,
The FED has the world by the credit balls,
And all the world is pained …
Is it time to revisit the concept,
Of control of usury?
Is charging interest enslavement?
Or does it really set us free?
The questions will never be answered,
In a fair and open way,
Until the scam ‘Rule of Law’,
Is purged or swept away …
Aggregate generational corruption,
Is now plain for all to see,
An intentional financial coup,
Chokes all those who wish to be free …
And the scam ‘Rule of Law’ has a guardian,
Its the electoral process zoo,
It is the gate to the nation’s law books,
It must be dismantled too …
But first to go must be gullibility,
Impeding freedom just like granite,
Deception is the strongest force,
Controlling politics on the planet …
i on the ball patriot
Greenspan also goes on to suggest that protecting sr debt holders is paramount as this is the “anchor” of the financial system. I thought deposits/savings were the anchor? Not only that the FDIC is explicitly backing bank debt which was a veiled attept to build in further protections for that side of the cap structure. it is clear that LEH, notwithstanidng the hole, was put into distress by the NY Fed. Why? Why did Geithner open the window the next day? Why is there not an investigation and a fukll airing of exactly why the window was opened the next day? PCould it be becuase it was thought to be a galavanizing event? Regardless the entire Greenspan event is yet further embarrassment. This guy deserves one thing: a trial.
S at 6:35 writes:
“As for geenspan he is of course is more to blame than Rubin although he is a disgrace as well. Greenspan led an independent central bank last time I checked.”
I think blaming Greenspan is shortsighted. In fact, I go further and state that these questions so often posed on the blogs of–“Who is to blame for this mess?” are all myopic…be it when we are looking to indict Greenspan, Bush, Rubin, etc…
I certainly do not absolve these people, but I think they just filled a slot.
Would Volker have led us down this path? Hell no! But it’s not because of his wise stewardship; rather, it’s because he wouldn’t have been in the position. The culture of the US would not have tolerated it. The tides were too strong….We refused to tolerate a little pain from the recession we had to have 8 years ago….and we wanted our interest rates low and our house “values” unrealistically high.
These debates over what individuals are to blame…all bullshit.
We, as citizens and as markets relinquished our responsibilites to hold these people accountable along the way. That’s why we are here.
Look back at how everyone parsed the great Maestro’s language at various speeches, etc…absolutely insane, and quite pathetic, really.
“Did Greenspan purposely use the passive voice when describing his future intentions?”
“I think he did! This, obviously is a clear signal to the markets! Buy! Buy everything!”
We deserved Greenspan. And Bush. And now Obama.
The question is not “Who shall we blame for this mess?”
The questions are—“Why on earth have we relinquished our rights…our duties…as citizens and allowed these corrupt, bereft charlatans to hold such power? Why did we allow ourselves to be spoonfed the Gerbers Grade Bullshit that ‘it’s different this time’? How could we allow these debts to accumulate so that we must now make like a theoretical physicist and use a goddamn exponent? Why did we turn a blind eye both the ‘Check’ and the ‘Balances?'”
Enough with Greenspan. He was just a puppet of the times…Greenspan doesn’t deserve any more credence other than the fact that the shithead should have been kicked to the curb after overreacting to LTCM.
And now here we are….
We know the stimulus is a croc…a diluted, compromised 1073 page bill that will be looked at by future generations the way we view blood-letting as a medical procedure.
We know TARP, TALF and BARF are obscene.
And we do nothing…we have the audacity to do nothing more than hope.
The next few generations will look at us with utter disgust and contempt.
After that…they’ll view us as feckless, morons—who while getting systematically violated were more concerned with googling on our i-phones.
And next year, we’ll debate:
Was it Team Obama’s fault or Team Bernanke?
“Ask not what your country can do for you?”
No…it’s high time we started asking just what in the hell our country is doing for us?
Wow…I feel better now. Thanks for the space to vent, Yves!
DD,
I couldn’t agree more with the comments. The entire globalization movement was and is an unholy alliance of the left and right. Causation for the decades long debacle clearly doesn’t fall on Greenspan alone; this much is obviosu. Indeed, the indictment would have to stretch back to the post WWII framers and the entire integration begets stability thesis. But that is a political and philosphical debate. I seethe about Greenspan because he is the living icon of an empire’s ungraceful decline. For sure, this is an indictment of the US public stupidity, who bit hook line and sinker the idea that spending borrowed money was a patiratic duty. Merely, look what they elected to public office the past decade plus. Flip on CSPAN tonight and watch “your” congress at work: downright scary. Washington DC stopped representing the American public a while ago. Read some van creveld.
http://en.wikipedia.org/wiki/Martin_van_Creveld
Finally, is it not a little ironic that now nationalization is in the news. The PR campaign by Jamie Dimon and WFC (in the form of the div raise back in July) were positioning tactics to be blessed as good banks. If a nationalziation does ensue, you can be sure that the sacrificial lambs will be slaughtered at the alter of preserving these franchises. This would be perfectly consistent with the “too clever by half” way Geithner and his former FRBNY board member Dimon think. The other problem for nationalization is how to deal with those outside the complex like Goldman? Level III assets put the lie to the current meme that these companies have deleveraged.
greenspan should go up against the wall
“you can be sure that the sacrificial lambs will be slaughtered at the alter of preserving these franchises.”
excellent point.
the devil is in the Dimon and Morgan’s ghost continues to haunt us all.
the only way any meaningful change will occur will be if a stake is put through JPM’s heart.
until then, it’s just newly colored frosting on the same cake.
I for one, think this is a good development. He’s providing cover if Obama actually grows a set and makes a move on the banks. So what if it is self-serving?
I’ve long ago written off Greenspan as a hack, but give the man some credit, he’s admitted in public that he was wrong about his most deeply held beliefs.
Anonymous at February 18, 2009 1:23 AM quoted: “We believed that if left alone, the systems will self optimize. They haven’t.” and responded: “Please give me the examples of government controlled economies working.”
Do you truly see no middle ground between no government intervention in the marketplace (“left alone”) and government control of the economy?
At the very least, you have to accept the enforcement of contract law, since without it there is no such thing as a market. And enforcing that law means that, once in a while, some company is going to get slapped by the government, or even shut down, because they aren’t obeying those laws.
Dan Duncan said – “These debates over what individuals are to blame…all bullshit.
We, as citizens and as markets relinquished our responsibilites to hold these people accountable along the way. That’s why we are here.”
What’s with the we? Do you have a turd in your pocket?
I think that’s apologist victim bashing bullshit and it only serves to piss on the spirits of the countless millions who did not relinquish their responsibilities along the way and have continually opposed the inequities in the system in countless ways but have been thwarted and had their good energies dissipated by; a scam rule of law created by sell out disingenuous politicians, a corrupt judicial system, crooked scum bag cops that selectively enforce the scam laws, and a scam electoral process that is not worth jack shit!
Yes we are all pigs. But some pigs are more equal than others and therefore deserve more blame than others. I think the whole raft of the Greenspan et. al., more equal pigs, should be put up against the wall. The Chinese have the right approach in dealing with corrupt politicians.
Dan Duncan said further – “The questions are—“Why on earth have we relinquished our rights…our duties…as citizens and allowed these corrupt, bereft charlatans to hold such power? Why did we allow ourselves to be spoonfed the Gerbers Grade Bullshit that ‘it’s different this time’? How could we allow these debts to accumulate so that we must now make like a theoretical physicist and use a goddamn exponent? Why did we turn a blind eye both the ‘Check’ and the ‘Balances?'”
The real question is why are you relinquishing your rights and duties as a citizen NOW? Now that you know that the ‘Rule of Law” is a bold face scam why do you not protest in the streets? Now that you know the electoral process is non responsive to the will of the people why do you continue to validate that non responsiveness with your vote? Why not instead vocally boycott the sham electoral process as a “vote of non confidence in this government” by sending your supervisor of elections a nasty letter expressing your disgust and reasons for abstaining? Failure to demand the heads of the more equal pigs is a gross relinquishment of your citizenship. And if you continue to spread the blame on to the less equal pigs, who were less prudent and conned on purpose so as to set them against the more prudent among them, you will insure the more equal than others pigs will escape punishment.
Stop lamenting and start dissenting. You can do that NOW.
Deception is the strongest political force on the planet.
i on the ball patriot
I’ve seen a few posts now where libertarians are blamed for this disaster. I don’t understand this. A fascist economic system collapses and it’s the fault of Libertarians?
As the great Benito said: “Fascism aught more properly be called corporatism for it is the merging of the interests of corporations and the State”
Anonymous @ 5:46
Miriam Pemberton was the former editor and director of the National Commission for Economic Conversion and Disarmament. So . . . do you think she has an agenda to support her world view? Also- how does this relate to Greenspan and the banking crisis? Please find another blog that discusses this issue if you find it important. As a side note the Department of Education was established in 1980. I can’t highlight any big success since their creation- it is always the lamest of arguments to say we need to spend more money on education( I mean who would argue)but what have we achieved? Where are the results so far? But I guess if we just spend more . . .
“A group of economists at the University of Massachuessetts did a study two years ago looking at how many jobs could be created from a billion dollars of military spending versus the same amount spent on health care, mass transit, home weatherization, and education and personal tax cuts .. what they found was that military spending was the nearly worst job creator among all those categories. the only thing that worse, was cutting taxes for personal consumption.”
Miriam Pemberton, Military Analyst, Institute for Policy Studies
Sounds like we should raise taxes and use the money on mass transit projects to fight the economic downturn. That’s the logical implication there. I like it.
5:20 AM,
“the big picture” is essentially invisible if starting from/staying within the fetishistic and in last instance always dependent level of finance — best pay more attention to the real global/national econ and relations within/between this and the financial. In any case, the comment was specific to job creation.
Ken,
Sure there’s ‘middle ground’ between the extremes of full blown state capitalism and supposedly pure laissez faire but, as systems evolve, the space available narrows. Read Paul Mattick’s 1969 “The limits of the mixed economy”, for example or from a different angle, O’Connor’s “Fiscal Crisis of the State” originally published in the earlier 1970s.
Those who love to say such things as ‘the present crisis could not have been foreseen’ have been typically selective/uncritical in their research.
Bilejones,
I would guess Libertarians are blamed since they – or at least their theoreticians – have tended to emphasize market-based solutions that pretty much always are no more than ‘if only reality conformed to theory’. But then that also applies to most all other brands of neoclassical (and classical) political economy — blame game is no more than another of the phenomena associated with attempts to avoid any fundamental questioning of the capital system.
Why does this financial mess remind me of Humpty Dumpty? Let’s see how many trillions of dollars we can spend in a futile attempt to piece what’s broken back together again. We should have learned from history and listened to FDR’s Treasury Secretary, Henry Morgenthau, Jr.
funny you should mention mr. morgenthau, because i just read today that his son, still NYC DA at the ripe old age of 90, just got the city $170M from the various shenanigans of the tyco thugs & lloyds bank:
http://www.villagevoice.com/2009-02-18/columns/morgenthau-nails-wire-transfer-schemers-bloomberg-yawns/
of course, mayor mike didn't bother to even have a press conference for him. guess it didn't show up on his bloomberg screen.
how bout ol' Henry III for SEC chair???
definitely got to get him on the drug money thing (from yesterday's NC links in case you missed it):
http://www.reuters.com/article/marketsNews/idUSLP65079620090125
“Please give me the examples of government controlled economies working. The Soviet Union? Cuba? Western Europe with their chronic unemployment? Why is Europe in trouble with all of its regulation? This crisis was caused by the Government and their solutions are going to make it worse. Study Hoover and FDR and tell me if you think government intervention works. It took the death of 60 million people and the desruction of most of the civilized world to get us out or that disaster.”
Oh, please. I am a libertarian! I have studied Hoover and FDR and WW2. Lots of big regrettable mistakes were made. But it is not a choice between fascism and anarchy. Without government there can be no free market. It is a question of what government works. Minsky teaches that economies are not naturally stable. We are seeing that first hand. That should make us all rethink our positions.
Yeah, sure. If Grenspan would have declared the federal government to have officially become a bubble, then I would be interested in his insights. Having failed that, though, I think tonight I’d rather to read Dick Cheney’s thoughts on foreign policy…lol
Vinny GOLDberg
If Greenspan wants to preserve bondholders yet avoid nationalisation, why doesn’t he embrace the Buiter proposal. It seems very bondholder-friendly to me, though not very taxpayer-friendly. But it avoids nationalisation. Who wants all those Govt. accountants running around digging up bodies?
I too note that Alan insists that “senior creditors must be protected,” but I do not think we should jump to the conclusion that he is trying to protect his friends – or at least that may not be the entire issue here. He may be concerned about systemic risk as forced cramdowns could trigger payouts on trillions in credit default swaps. If those swaps are triggered it could be much more than a mere trillion or so of deposit insurance that would be required, in this opaque CDS market who really knows who is on the hook for how much. I keep yelling about this into the blogosphere. I know some of you out there know more about this subject than I do – perhaps you all do – but we lay observers are left to believe that either the politicos have been captured by the big bankers, certainly a possibility, or they are scared witless. The only boogy man I can see is these CDSs and the risk of systemic collapse of epic proportions. Am I afraid of my shadow?