The American Prospect: The Great Enabler (Greenspan)

The Great Enabler

In his unguarded, unmediated moments, Alan Greenspan the economist has begun repudiating Alan Greenspan the (anti) regulator. Will anyone notice?

Robert Kuttner | November 26, 2007



The Age of Turbulence: Adventures in a New World by Alan Greenspan (The Penguin Press, 531 pages, $35)

In one of the stories that he made up while writing for The New Republic, the young fabulist Stephen Glass spun a narrative about an Alan Greenspan cult in the financial world. The members supposedly held reverential celebrations of the Fed chairman's birthday as well as quasi-religious observances at several brokerage houses. "He's been good to us, and it's a way to honor him," a fictitious bond trader supposedly said. Interestingly, this was not one of the articles that brought down the mendacious Glass, for the idea of a Greenspan cult hardly strained credulity.

In his 18 years at the Federal Reserve, Greenspan had the reputation of an economic wizard—the rare Fed chairman who did not take away the punch bowl during booms but somehow avoided getting the economy drunk on inflation nonetheless. Unlike most senior Fed officials, Greenspan came to prominence as a business researcher who studied actual economic conditions in all their institutional complexity. As the junior partner in the economic research firm Townsend-Greenspan, he became celebrated for his genius in forecasting trends based on his detailed reading of such statistical indicators as freight-car loadings and shipments of raw cotton. Along the way, he became an acolyte of Ayn Rand, whom he recalls fondly.

Greenspan first entered public life as a volunteer economic adviser to Richard Nixon's 1968 campaign. Though he served as an informal adviser to Nixon after the election, it wasn't until late in the Watergate scandal that the White House chief of staff, Al Haig, asked Greenspan to become the president's top economic adviser. Appalled by Nixon's dalliance with wage and price controls and personally uncomfortable around the man, Greenspan demurred until his old mentor, Fed Chairman Arthur Burns, urged him to accept for the good of the country. His Senate confirmation hearing was Aug. 8, 1974. That evening, Nixon resigned.

Gerald Ford, however, retained Greenspan, who then began what would be a 30-year, bipartisan process of deregulating the U.S. economy. Many Americans think deregulation began under Jimmy Carter or Ronald Reagan, but Greenspan is determined to set the record straight. "Deregulation was the Ford administration's great unsung achievement," he crows, meaning, of course, his own. "It's difficult to imagine how straitjacketed American business was then," Greenspan continues, insisting with Randian hyperbole that government was monitoring business operations "down to the tiniest detail."

If Greenspan managed to make over his public image from a competent technical economist cum Ayn Rand fanatic to wise manager of the economy, his personal obsession with getting government out of the way stayed with him. He wrote his memoir virtually on the eve of the meltdown in sub-prime mortgages—a direct result of Greenspan's own refusal to use the Fed's authority to regulate loan-underwriting standards. But, oblivious to the dangers, he declares, "Awareness of the detrimental effects of excessive regulation and the need for economic adaptability has advanced substantially in recent years. We dare not go back." ......(more)

The complete piece is at: http://www.prospect.org/cs/articles?article=the_great_enabler

His policies cheated savers (CD's, savings accounts, etc.) out of billions of dollars, while creating the easy credit that enabled the speculation in the stock market, real estate, the housing bubble, and subsidized the multinational corporations' building of factories overseas, and sending American jobs there.

He is also responsible for the raiding of the Social Security fund. He suggested to Reagan to raise the FICA tax to bring in tons of money. Then they "borrowed" money from it to put in the General Fund, replacing that money with IOU's, and then cut taxes for the wealthy. The reason the Social Security Fund may have problems is because the Republicans stole it to give tax breaks to the rich. If they repaid the IOU's, the trust fund would be solvent for decades, without having to raise FICA taxes for anyone.

... there are many culprits in this debacle we now face, but Greenspan sits head and shoulders above them in culpability.

He bowed to POLITICAL pressure to not let a recession happen on Bush's watch. Now, we'll be getting the mother of all recessions.