1 Boring Old Man

Alan was a New Yorker, born in the twenties, who wanted to be a musician – a jazz musician. He played with Stan Getz in high school, so he went Juilliard, but dropped out to play professionally during the War years. In 1945, he went to college at NYU where he got a BS and an MA in Economics. He married an artist, Joan Mitchell, in 1952, She introduced him to author Ayn Rand. While his marriage only lasted a year, he remained a part of Ms. Rand’s circle until her death in 1982. This was not a casual relationship [timeline]. He wrote articles for her Objectivist newsletters, contributed essays for her book Capitalism: the Unknown Ideal, and was in the inner circle of her followers who read and discussed her book, Atlas Shrugged, as it was being written. She was at his side when he was sworn in as Chairman of Economic Advisers in 1974. And here she is telling us what she thinks in 1959:

It’s not my intention to blame either Ayn Rand or Alan Greenspan for our recent financial meltdown. The entrepreneurs of Wall Street did that all by themselves. But Ayn Rand’s ideas [or should I say, ideals] were a mammoth influence on Alan Greenspan. And Alan Greenspan was a central player in the run up to our current nightmare. He facilitated the creation of the financial playground where the dirty deed could be done. So it’s worth a look.

As you can see, Ayn Rand is facile with words. In her exchanges with Mike Wallace, she makes rapid fire come-backs to his questions. Her philosophy is at first hard to follow. She decries the Christian theme of self-sacrifice, becoming a prophet for self-interest as the only valuable human motivation. On the other hand, she is surprisingly idealistic about how people will behave  in her world of absolute freedom. Her characters are all heroic, rugged individualists [with angular features], frustrated by the pull to mediocrity from the collective masses. Hers is a philosophy for giants, creators, movers and shakers. And through it all, she has an undying faith in the power of the free market to work things out. She was a Russian Immigrant who came to America only 8 years after the fall of the Czar and the advent of communism, but she had an intense hatred for collectivism of any kind, and a Romantic way of thinking about the giants of capitalism.

Alan Greenspan is hardly the paradigm for an Ayn Rand hero. A failed jazz musician turned economist, he wore thick glasses, dark suits, and he is decidedly unangular.

Greenspan worked as an economic analyst at The Conference Board, a business and industry oriented think-tank in New York City from 1948 to 1953, Then he was chairman and president of Townsend-Greenspan & Co. Inc., an economic consulting firm in New York City, until he took over the Federal Reserve in 1987. He was on a number of Corporate Boards as well as serving on several advisory committees in Government before going to the Fed. He dated Barbara Walters [who didn’t?] and married Andrea Mitchell in 1997 [after a 13 year courtship].

I guess we saw him as a wizard, playing around with interest rates at the Fed to stabilize the economy. And while he’s been blamed and defended for our current crisis, seen as brilliant and alternatively as a political hack, there are several ways in which his Objectivist [Ayn Rand] roots are very apparent and didn’t serve us well.

In December 1996, with the support of Chairman Alan Greenspan, the Federal Reserve Board issues a precedent-shattering decision permitting bank holding companies to own investment bank affiliates with up to 25 percent of their business in securities underwriting [up from 10 percent]. This expansion of the loophole created by the Fed’s 1987 reinterpretation of Section 20 of Glass-Steagall effectively render[ed] Glass-Steagall obsolete.

But going back in time, during the Administration of George H.W. Bush, Wendy Gramm, a Ph.D. Economist and wife of Senator Phil Gramm was Chairman of the Commodity Futures Trading Commission. The not-yet-notorious Enron Corporation was lobbying to be exempted from regulation in its trading of Energy Derivatives. In 1993 as her last act before leaving, she granted the exception. She left the CFTC, and [went on the Board of Enron]. She was followed at the CFTC in 1994 by Mary Schapiro who moved on to become President of NASD. So Brooksley Born became Chairman of the Commodity Futures Trading Commission a couple of years after Wendy Gramm’s exception. By 1998, that exception had grown into a gajillion dollar, unregulated Derivatives Market. In May of 1998, Born published a "concept release" asking for input about whether and how to regulate this expanding Derivatives Market [the "dark" Market]. This idea was immediately opposed by Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert E. Rubin and Securities and Exchange Commission Chairman Arthur Levitt Jr. Then when Long Term Capital Management, a Hedge Fund heavily into Derivative Trading collapsed, she escalated her concerns about this unregulated Market in Derivatives. Her opponents responded by getting Congress to declare a 6 month moratorium on regulating Derivatives. After multiple meetings and some seventeen Congressional appearances, she gave up and left her post in June 1999. In November, the President’s Working Group on the Economy [Treasury Secretary Lawrence H. Summers, Federal Reserve Chairman Alan Greenspan, Securities and Exchange Commission Chairman Arthur Levitt Jr., and the new Chairman of the Commodity Futures Trading Commission William J. Rainer] issued a report, Over-the-Counter Derivatives Markets and the Commodity Exchange Act, unanimously recommending that these Derivative Markets continue unregulated.

If deregulating the Banks [by repealing Glass-Stegall] was bad, this Derivative business was very bad. It essentially created the Casino that allowed the financial bubbles that lead us to ruin.

But it was Greenspan’s idealization of the free-market that may well have been the biggest hit from his tenure. He was optimistic about derivatives. He was dismissive of the growing bubbles, particularly the housing bubble. And he was loose with capital, stimulating a speculative economy that became increasingly dangerous and finally imploded. He had Rand’s idealized set of ideas that was blind to the cancer of greed he unleashed on Wall Street and in the halls of the mega-financial institutions deregulation created.

Greenspan Shrugged? Did Ayn Rand Cause Our Financial Crisis?
Huffington Post
By Deborah Jones Barrow
10/24/2008

"Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shocked disbelief."

So said former Fed Chairman Alan Greenspan in his dramatic testimony before the House Committee on Oversight and Government Reform, as he was grilled by committee members on the causes of the nation’s financial crisis. Greenspan, whose laissez-faire capitalist leanings led him to reject decades of calls for more robust government oversight of financial markets, was repeatedly interrupted by the lawmakers in a contentious exchange that clearly shows the gloves are off in regard to the former chairman’s legacy.

In his startling admission, the former head of the Federal Reserve reveals that his long-held and controversial notion that enlightened self-interest alone would prevent bankers, mortgage brokers, investment bankers and others from gaming the system for their own personal financial benefit has, as the English say, come a cropper…

Today, 40 years after the heyday of those gatherings, Greenspan surprised many with his "Yes, I found a flaw" response to a grilling from the Committee. Responding to the clear failure of the notion of "enlightened self-interest" to stop the cascade of financial catastrophies that have roiled world markets, he said, "That is precisely the reason I was shocked, because I’d been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

Greenspan’s critics have long charged that his refusal as Fed Chairman to impose greater government regulations on mortgage lenders is one of the causes of the sub-prime mortgage meltdown. 

Committee Chairman Harry Waxman (D-CA), in a heated exchange told the former Fed Chairman that he had "the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others, and now our whole economy is paying the price.”