Of course it’s not possible to blame any one individual for the current meltdown of the global financial system. After all, scandal and speculation are as old as capitalism itself. Greed drives the price of everything from roses and real estate to unsustainable levels, then all panic at once and head for the exit at the same time. But surely no single individual is as closely identified with the current financial collapse as Alan Greenspan. He did, after all, preside over the US economy for two decades, helping to usher in an era in which financial speculation became ever more divorced from what was happening in the real economy of jobs and production.
A Republican appointee from Ronald Reagan’s last term, Greenspan co-existed well with the conservative, deregulatory economic policies of the Clinton Democrats (shaped by current Obama advisor Robert Rubin). But he only fully flowered when George Bush's neocons brought in a programme of market über alles. Tax cuts for the rich, runaway military spending, a vast deficit and a boom in financial profits fuelled by an explosion of unstable credit: the writing was on the wall if you cared to read it.
Greenspan chose not to. Given the current financial crisis Greenspan is showing signs of worry about History’s Judgement – always a concern for the Rulers of the Overworld. After all, when one is used to having the global markets rise or fall a couple of hundred points as a result of an appropriately placed cough (raising interest rates?) or intonation of the voice (tightening money supply?) there is a lot of reputation (to say nothing of ego) at stake. So Greenspan has gone on a personal offensive to prove that he is not responsible for the current disaster. His autobiography The Age of Turbulence: Adventures in a New World (for which he received an $8 million advance) is 500 pages of apologia and self-justification. He desperately tries to distance himself from the Bush Administration, claiming unease with their policies of tax cuts and deficit spending. It’s a kind of ‘I was against it even if I acted like I was for it’ approach, combined with the usual recitations of conviction that the Gods of the Markets are beyond mere mortals anyway.
Part of Greenspan’s offensive is his face-off against critics in the Financial Times’ prestigious Economists’ Forum. Here he tries to disassociate his policy of low interest rates from the sub-prime housing boom. He also downplays the role of the Federal Reserve in regulating financial institutions (a non-starter for this libertarian Republican). He continues to glorify ‘financial innovations’ such as the now-infamous derivatives market and the bundling of mortgages into ‘securitized’ paper for trade and sale. The problem, he claims, is short-sighted abuse and occasional corruption rather than the underlying speculation. Pull the other one.
There is a certainty about Greenspan and his pronouncements that has inspired false confidence for several generations of market players and watchers. True, he grew up poor in Brooklyn, but he quickly moved beyond his modest roots with degrees in economics from NYU and Columbia. Early on he fell under the spell of the weird rightwing US cult centred on Ayn Rand and her philosophy of ‘objectivism’. Rand, who combined well-publicized love affairs with sermons on the virtues of greed and ruthless self-interest, has done more damage to the young of the US than anything except its underfunded public education system. Her novels such as the infamous Atlas Shrugged are mainstays of any neocon library. Greenspan was part of Rand’s inner circle (called, ironically perhaps, the Ayn Rand Collective) and contributed to her newsletter and her 1966 essay collection Capitalism: The Unknown Ideal.
After a stint at the Conference Board, a business-oriented thinktank in New York, Greenspan went on to form his own business consultancy and sat on the boards of some of the largest of the corporate behemoths: General Foods, JP Morgan, Morgan Guarantee Trust, Mobil Oil and the Aluminum Company of America. These were the kinds of company that a man destined to take over the reins of the US Federal Reserve needed to have on his CV. After all, they had to have confidence that he would put their interest before all others. They did.
One is tempted with the collapse of the financial sector to say good riddance to all those derivative traders, investment bankers, overpaid CEOs and other ‘get rich quick’ artists that Greenspan aided and abetted. Unfortunately, it’s not as simple as that. Greenspan and his ilk have done profound damage to the four million poor people in the US driven from their homes, to those who are trying to squeak by on hard-earned pensions – and to all workers and consumers who have to live in the real economy. Now taxpayers are being forced to ante-up to cover the losses of the speculative bubble, while the economic powers-that-be try to limit the encroachment of the public interest on their precious market freedom. That is the true legacy of Alan Greenspan. Ayn Rand would be proud.