One of the economy's Terminators is back, bringing Ayn Rand and memories of mid-20th century movies with him.
Preparing to testify before the Financial Crisis Inquiry Commission, Alan Greenspan reaffirms absolute faith in his mentor's me-first market philosophy in "The Fountainhead" and adds a note from "Dr. Strangelove."
Asked if the meltdown disputes Rand's theories, Greenspan says no, it was not the fault of free markets, that "the major mistake was assuming what the nature of risk would be. And the reason it was missed is we have had no experience of the type of risks that arose following the default of Lehman Brothers in September 2008.
"That's the critical mistake. And I made it. Everybody I know who works in this business made it."
This is straight out of "Strangelove" in which a clueless general defends the fail-safe system that has allowed impending nuclear destruction of the planet: "I don't think it's quite fair to condemn a whole program because of a single slip-up."
Beyond that, Greenspan should read Michael Lewis' new book, "The Big Short" and enlarge his circle of acquaintances to include those described therein who foresaw the bursting of the mortgage bubble and profited from it.
To make financial reform "fool-resistant," Congress will have to go beyond conventional wisdom and put restraints on the money manipulators that really work.
One step would be to break down Wall Street's old boys' network, where an estimated only two to three percent of finance-related chief executives are women, and reach across gender barriers for regulation of the system.
In choosing someone to oversee such activity, they would be well-advised to go beyond Greenspan's crowd and look to someone like Elizabeth Warren or Sheila Bair as a czarina who would bring to the macho game of grabbing profits at everybody else's expense a different perspective.
But not Ayn Rand's.
The problem here is that the benevolent titans of industry that Rand developed to fill her books are fictional characters. The assumption that their super awesomeness will be cause the functional running of the world was a poor, poor assumption. If the perfect superman that Rand assumed would rise to the heads of all industries based on their super-duper powers of being awesome don't exist, then the whole system falls apart. Hence, the mess we're in.
ReplyDeleteFrom roro80 from TMV
The wizard of oz might be another appropriate parallel. Who would want to own up to such a failed legacy? Not Greenspan.
ReplyDeleteA little history would show that the finance industry couldn't cause these kinds of problems when money was solid. Since the Fed was created, we've experienced huge bubbles that weren't even possible before, and they're trying to keep it up. We need solid rules, because the money isn't.
ReplyDeleteActually Daniel, it wasn't until the financial reforms FDR undertook and the creation of Glass Steagal that booms and busts were not allowed. These swings are signs of market manipulation. So, you gots it backwards!
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