Like George W. Bush’s claim that “everyone” got it wrong about the intelligence showing that Iraq had stockpiles of WMD, Alan Greenspan is still trying to convince us that “everyone” got the housing bubble wrong too.
Brooksley Born asked Greenspan this week about his enthusiastic support for “over the counter derivatives” and reminded him that he fought against all regulations over the OTC derivative market. These derivatives, she pointed out, ballooned to having a $680 trillion notional value by 2008, and played a huge role in bringing down the nation’s banking system.
Greenspan’s reply? “Credit default swaps did create problems,” he admitted in one of his many monstrous understatements.
Greenspan gave no ground to Brooksley Born and dismissed her critique as if he were batting away a mosquito. He won’t even acknowledge the obvious fact that he failed in his job and was partially responsible for setting up the system that produced the worst financial and economic crisis in a generation. Greenspan had all the tools necessary to have prevented the collapse (or at least mitigated its effects) if he weren’t such an anti-regulatory zealot. He still affects the tone of the professor explaining complex ideas to a gaggle of college freshmen. Greenspan is not even a good Randian because he tries to hide his belief in Randism.
Born also pointed out that the problems with CDSs were known as far back as 1997. The federal government had to bail out AIG to the tune of $180 billion largely because of this unregulated market. Greenspan’s answers were intellectually dishonest in the extreme. He still wants to blame a “few bad apples,” instead of looking at his own role fanning the flames and pouring gasoline on the fire while the $8 trillion housing bubble was being pumped up. Greenspan said AIG’s problems were with insurance, but Born countered that if CDSs had been insurance they would have been regulated. Greenspan is bullshitting us again.
Born hit the nail on the head when she brought up the “Maestro’s” extremist ideology. Your ideology has essentially been that markets are self-regulatory or that government regulation was either unnecessary or harmful, she said (paraphrasing). Did your belief in deregulation have any impact on your lack of regulation at the Fed? She pointed out that he served for eighteen years as Fed Chair and that the Fed utterly failed to prevent the housing bubble, or the predatory lending scandal, or the biggest banks from engaging in activities that brought them to the brink of collapse, and permitted the financial system and economy to fall into utter disaster; he also failed to prevent banks from becoming too big to fail – “Didn’t the Fed fail in its mandate?” Born asked. But the only “flaw” Greenspan is willing to acknowledge is that he, like “virtually everyone” – academia, banks, etc., all missed it. Greenspan said that he “took a oath of office” and that his own Ayn Randian ideology played no role!
In communities throughout northern California municipal and county governments are being forced to fire hundreds of teachers and close dozens of schools; they’re shutting down public libraries and closing public parks; they’ve fired police and sheriffs; they’re cutting light rail and bus services. Home prices have plummeted. Construction workers are sitting idle. There are potholes not being filled and garbage not being picked up. The unemployment rate hovers at around 13 percent and the other day about 3,000 people showed up for a chance to get a seasonal minimum-wage agricultural job. Other communities throughout the country are facing similar budget crises, mostly due to collapsed property values and unemployment. In short, the quality of life for millions of Americans has declined precipitously.
In October 2005, Alan Greenspan assured us that “increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system.”
From the time Greenspan’s buddies on Wall Street concocted “innovative” new financial “products” to screw over what was left of the American middle class the country has been reeling. And there’s the Maestro doing what he does best: obfuscating, prevaricating, and dishonestly covering his own very rich ass.
It must be terrific to be Alan Greenspan. (Or Karl Rove or Chris Cox). You can be at the center of the worst financial crisis in a generation and play dumb about your own role in it. On the one hand, he’s an all-knowing owl of a man prescient and noble in his analysis; on the other hand, he’s an incompetent nincompoop who wouldn’t know a derivative from his own backside.
Crossposted with Joseph A Palermo