Greenspan Rewriting His Legacy—With Help Perhaps?

For more than two years, Republicans, including George W. Bush and Dick Cheney, have been working overtime to buff up their legacy, usually with imagination and some departure from the facts. The latest p.r. effort is by former Fed Chairman Alan Greenspan. Instead of offering a four or five page apology for his blunders, short-sightedness and his adherence to market voodoo, Greenspan offers a 66 page tome of excuses, might-have-beens and who-could-have-imagineds.

In the fall of 2008, Alan Greenspan was honest for a few minutes in a hearing before Congress. Let's remind ourselves what Greenspan said:

“I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms,” ...

At the time, Greenspan was clearly on the right track. He was beginning to recognize the colossal failure of a 28 year experiment in deregulation. But he waffled a little even then by saying he did not fully understand what happened. Hence, Greenspan now treats us to 66 pages of what is largely Republican nonsense. So much for the dismal science, at least according to the Ayn Rand/Milton Friedman crowd.

Fortunately, there are economists who not awed by Greenspan. Here's what James K. Galbraith writes in The Huffington Post (and just why aren't more of his views in places like The New York Times or The Washington Post? He certainly has more credibility that the conservative think tanks sponsored by Rupert Murdoch.):

In 66 pages [pdf], Mr. Greenspan fails to use the word "responsibility" even once. The word "blame" does not appear. The word "mistake" occurs once; financial firms made them. The word "failure" appears 14 times. None of them are self-referential. To have expected the phrase "mea culpa" would of course be asking too much.

(snip)

The most telling omission in this paper is that the word "fraud" does not appear. But the world knows that the collapse of the financial system had, at its core, the largest financial fraud of all time. That fraud was in the origination, the rating, the underwriting and the issuance of credit default swaps against sub-prime mortgages issued largely by private originators and securitized by the largest banks.

The FBI knew this in 2004, when it warned in public of an "epidemic of mortgage fraud."

So, do we have financial reform yet? For all their jawboning and waving their arms and jumping up and down, we can expect no reform from Republicans any time soon. They might have seized the initiative during the Bush years since they had the votes but they chose, like the president, to sit on their hands and let the good times roll, as corrupt as they were with little oversight. At the end of the day, all Republican politicians are really interested in is lowering taxes for their rich clients, including the same people who created the crisis.

We might expect reform from the Democrats but that's not always a sure thing. It's not easy bucking the conservative economic bromides and myths of the last thirty years, particularly when Democrats aren't exactly as liberal as they once were—say back in the 1960s. Even many older Democrats have a hard time understanding that it makes no sense to tinker with failure by making minor changes in an economy that is still far more deregulated than it has any business being. Even under Republican presidents, it is possible to get businesses to follow the law, but only if the law exists in the first place and only if there is a degree of oversight reasonably free of political interference (and it would help to have a Supreme Court that doesn't so quickly genuflect to big corporations).

Paul Krugman is worried. It seems Barack Obama is not the only one who tries too hard to be bipartisan. Krugman writes on his blog:

So what does this have to do with financial reform? The pre-1980 system was, I’d argue, pretty robust. Bank regulators didn’t have to be all that smart, because the rules were simple — and besides, the large franchise value of banks, the fact that they faced limited competition and were almost guaranteed to be profitable, made bank executives unwilling to take big risks of killing the goose that laid golden eggs.

By contrast, the regulatory proposals now on the table ... rely on regulators identifying systemic risk and the actions to combat it. The Frank (House) bill is more [robust] than the Dodd (Senate) bill, in that it sets some firm, nondiscretionary limits on leverage and other stuff; there’s an awful lot of leaving things up to the judgment of the Fed and others in the Dodd proposal.

Others? Those others included any number of people appointed by Bush to make sure as little as possible was done to protect the American people from the predations of Wall Street and the mortgage brokers.

Between now and the fall elections, Obama and other Democrats need to do three things. First, stimulate the economy in a way that creates real jobs. Second, they need to cut Wall Street down to a manageable size that works for the American economy and not against. Third, make it absolutely clear to the American people that the bright Republican ideas of the last thirty years do not work, they are profoundly flawed and they are directly responsible for the meltdown and the high unemployment rate.

If Republicans return to office in their current mood, we are going to see more economic nonsense such as the privatization of social security, more bonuses for rich bankers by way of tax cuts and more loss of jobs overseas. These are not slogans or propaganda. They are on the Republican agenda.

Let's return to Greenspan for a moment. He endorsed John McCain during the 2008 election. McCain was erratic during the economic crisis. He had no idea what he was doing. So much for Greenspan's judgment. But the Countess of Wasilla, she of the $150,000 wardrobe, $100,000 speeches and $10,000 a plate dinners, is campaigning for McCain, buffing up his right wing creds. Does anyone believe that the Countess does anything for free? Like so many Republican leaders these days, she sees dollars signs for herself and not much for the American people. But she would like to lead. The Democrats already have somebody better, not just in the White House, but in both houses of Congress.