Greenspan Follies: The World Is as Ayn Rand Would Have Predicted
Alan Greenspan has finally acknowledged that he may have made some mistakes in allowing an $8 trillion housing bubble to grow unchecked. (Look for rivers flowing upstream.)
This modest act of contrition should be welcomed, but analysts have been far too quick to describe Greenspan as a prisoner of his free market ideology and the current crisis as a story of the free market running wild. This is far too generous a description of Greenspan and the current economic situation.
First, insofar as Greenspan acted (or didn't act) out of ignorance of the true situation, it was because he was ignoring Ayn Rand, not because he was following her.
Let's set the stage. Bear Stearns, Goldman Sachs, Citigroup and the rest of the big banks are run by hotshot Ivy League business school types. These are bright, hard working ambitious people who want to make lots and lots of money.
The executives at these banks are sitting on enormous piles of money that they can get access to as a result of being at these huge banks. The hotshot executives know that they can get huge bonuses by taking risky gambles with the banks' money.
The executives can make bets, that if they pay off, will get them tens of millions a year in bonuses and other compensation. Of course, if they lose they can bring down the house, meaning that they bankrupt Bear Stearns, Lehman, etc.
What would Ayn Rand expect to happen? On the one hand we have the hot shot executives, on the other hand the schmucks who own stock in these banks. Would Ayn Rand expect that the executives would put aside their ambition, their lust for success, their greed, in order to benefit shareholders who are too dumb to even know what a credit default swap is?
Not for a second; Ayn Rand would watch the Wall Street big boys run roughshod over their shareholders' interests and be applauding them every step of the way. That is how the game is played. If Greenspan didn't think the Wall Street crew would rip off their shareholders for every last penny, then he was not a worthy disciple of Ayn Rand.
As far as this being a story of the market having run amok, that is only partially true. The banks were able to get access to vast amounts of capital because everyone had faith in the "too big to fail" doctrine. In other words, all the people who lent Bear Stearns, Lehman, AIG, Goldman and the rest money felt secure because they thought the government would come to the rescue at the end of the day if the hotshots messed up big time.
With the exception of Lehman Brothers, these folks were right. The Wall Street hotshots were gambling not only with their shareholders' money, but they could also count on the security blanket of a government bailout if they really got into trouble. In other words, they were gambling with the taxpayers' money also.
This is important because the Wall Street hotshots didn't have and don't want a free market. They want to be able to take big risks with other people's money, both their shareholders and the taxpayers.
This is not to say that we would want a real free market in finance. It's not even clear what that would look like. But it is clear that the Wall Street hotshots who brought us this disaster have no interest in a free market. They want to be able to operate with a government security blanket while not being required to contain risk or pay for this insurance. Calling them, or their patron Alan Greenspan, free market ideologues is far too generous.
Excelletn analysis.
Rand is undoubtedly SPINNING IN HER GRAVE over what Greenspan has done with his influence over FED policy. She would in NO WAY have supported the numerous interventions into the markets that he has initiated over his career.
In Ayn's market viewpoint, the markets should be PERMITTED TO FAIL when they make high-risk investments - and that very possibility is the PRIMARY REGULATORY INHIBITOR that would operate against FUTURE decisions to invest in such shaky financial instruments.
The fact that regulation and intervention has FOR YEARS prevented otherwise inhibitory market forces from doing their jobs has only exacerbated the current meltdown.
as with all Band-Aid approaches to major wounds, they eventually fail - and the resulting cure if far harder to 'take' than what would have been easier to take in the first place had the market been permitted to operate as it should - with gains and losses going to those who take the risks - and are willing to bear the consequences.
October 23, 2008 7:30 PM | Reply | Permalink
Ayn Rand was Greenspan's sock puppet and intellectual whore.
Greenspan found her in obscurity and fed her quasi economic babble for her to sensationalize into tawdry romantic trash portraying the CEO as Superman, which he then helped to popularize. He trotted her to cocktail parties as a Russian ex-pat whose entire worldview was shaped from traumatic experiences in Russia, and would be the perfect mouthpiece to romanticize laissez faire fundamentalism.
Ayn Rand was in essence Greenspan's concubine. The original Russian mail order bride.
October 23, 2008 8:34 PM | Reply | Permalink
BTW: I should also add that if Ayn Rand is a puppet, Greenspan himself was always a puppet too.
By the time he met Ayn Rand and recognized her potential as a propagandist, he was already an up and comer in a corporate funded economic policy think tank. He would go on to serve on the boards of many major US corporations, as a reliable pro-management yes man, under executives who by nature tend to be arrogant and revile shareholders, and always against government regulation.
Greenspan never excelled on his merits but was himself always a puppet for others, regurgitating their beliefs in their interest, not his own.
PS: Rand also smoked herself to death, all the while denying the cause. Another example of her great "objectivism."
October 23, 2008 8:49 PM | Reply | Permalink
PS: Rand also smoked herself to death, all the while denying the cause. Another example of her great "objectivism."
At Ayn Rand's funeral, a six-foot floral dollar-sign was placed by the casket.
Thus, it would only be fitting that at the funeral of the US Dollar, currently on life-support, there be by its casket a life-sized floral arrangement depicting Ayn Rand and Alan Greenspan in flagrante.
October 24, 2008 5:47 AM | Reply | Permalink
UUUH...WTF I just can't agree with Dean or Gaylthacan. Ayn Rand hated poor people and figured they deserved to die for holding back the masters of the universe( the achievers of the world). Alan Greenpsan did do exactly what she advocated, " get rid of the leaches" i.e. the poor. This is the same thing every thief tells themselves when taking other people's prosperity away,"He didn't deserve it anyway." Ayn Rand's ideology is the ideology of the elites and elitists are thieves of the highest order. Elitist view themselves as the only ones deserving of life, just look at the Nazis. Greenspan was not deluded about he was doing, I think he wanted what happened to happen. Greenspan is just lying about his role in it. He didn't ignore Ayn Rand, he did exactly what she advocated, bring the system down that helps "useless" people. She hated socialism in any form, and democracy is in many ways a form of socialism. Good government should hold everyone responsible for their actions. The Government Opposition Party is against democracy for those reasons. By bankrupting the government, they have succeeded in their first goal, and their next and final goal is to prevent any form of wealth redistribution to the poor. Mark my words, you'll see....
October 23, 2008 8:50 PM | Reply | Permalink
Exactly. The devolved empathy retarded troglodytes at ENRON and throughout various private and civil scandals all shared a ruthlessly predatory, greed is good, proto-fascist, Social Darwinist ideology espoused by Ayn Rand, Greenspan, Friedman, and other such market fundamentalist plutocrats.
Darwin himself found so called "Social Darwinism" to be a grotesque mutilation of his theories, having recognized that reciprocal altruism, empathy and trust, are fitness traits in direct proportion to the intelligence of a social species.
Ugh. It's truly maddening the kind of witless ideologies that take root, even in the highest places, and ultimately the destruction that results.
We can only be thankful Greenspan was only FED Chairman and the damage was limitied, and not Prince Greenspan heir to a throne, or Generalissimo Greenspan.
October 23, 2008 8:26 PM | Reply | Permalink
Greenspan couldn't reconcile his Rand with his job. By definition, he was a public servant; by ideology, he was a libertarian. Incompatible.
So much for fake laissez-faire.
October 23, 2008 8:57 PM | Reply | Permalink
There's no such thing as "real" laissez-faire either.
October 23, 2008 9:05 PM | Reply | Permalink
Sometimes you need a voice of reason. Rand had a way of cutting through the BS and making a good point. In his memoir Greenspan recounts how Rand conceived him that rationally he was nothing. Now we need a new voice of reason for our present crisis. I found that voice in this new article by Steve Forbes: . He does a great job of demonstrating how capitalism plays the crucial role in getting us out of our current mess. I commend it to you.
October 23, 2008 9:29 PM | Reply | Permalink
You're joking, right? Steve "Flat Earth, er Flat Tax" Forbes?
October 24, 2008 2:48 PM | Reply | Permalink
Where Rand makes common cause with the capitalist crowd is in creating a self-serving faux philosophy that whitewashes greed into virtue.
October 23, 2008 9:41 PM | Reply | Permalink
The sheer and utter ignorance of most posters to this thread is sad commentary on the level of discourse (and knowledge in general) of the average TPM poster - who pontificate on subjects of which they have no knowledge whatsoever.
A shame, Dean, since your college-graduate level observations seem wasted on a 3rd-grade level audience, for the most part.
Hopefully some better-read (and educated) and more historically knowledgable TPM members will happen by and comment.
October 23, 2008 9:50 PM | Reply | Permalink
Jerk....
October 23, 2008 10:59 PM | Reply | Permalink
Get out of my sun light Alexander!
October 23, 2008 11:00 PM | Reply | Permalink
In defense of ayn rand...(?)
She pointed out that more suffering has been caused by 'goodness' - really puritanism and 'purist' pious enforcers than all the self interested people in the world (think Pogrom, think Inquisition, hell there would practically be no gangsters or mafia without puritanist views toward drugs).
Yet...
Still, how can these dime store libertarians square the circle that, in fact, none of us can call himself self reliant. Literally no one.
Not since they cancelled "Grizzly Adams" anyway.
And to have a social theory that says screw over the common good - how far do you take that? Really there can be no morality at all if you just say, as "Joe the plumber" said of social security that you "hate it."
Joe the dimestore libertarian 'hates' the social contract, saying he had his own mother and father and didn't need a government 'father.'
Why on earth didn't they ask him: "Hey Joe, do your parents get social security?"
The point of the libertarian philosophy isn't to arrive at a truth, it's just a fig leaf for, for want of a better term, assholes.
We must really live in a 'socialist' classless society if Joe P and Alan G can both subscribe to the same bullshit dimestore Libertarianism.
October 24, 2008 11:25 AM | Reply | Permalink
. . . shareholders who are too dumb to even know what a credit default swap is . . . . Dean Baker
And here's a picture of one of those shareholders.
Okay, he's not really a "shareholder"; he's a manager of other people's money (OPM). And he thinks that everything is hunky-dory just as long as when he fails he's failed in the same way that his confreres failed -- that is, he is one of a herd and therefore, cannot be criticized.
Dumb? Certainly not. Self-interested? Who could doubt it.
N.B. Greenspan did not seem to recognize that financial institutions had, over his time, turned themselves into hedge funds subject to "black swan" events guaranteed to destroy them, eventually, and as importantly, that OPM managers who believed they could sell their shares quickly had no interest in whether the companies in which they invested OPM survived -- that is, Greenspan incorrectly expected these shareholders to discipline those companies' management.
And it is that market condition which Greenspan has suggested his ideology (his comprehensive view of how markets work) may not have taken note of and therefore, may cause him to revise his ideology.
October 23, 2008 11:00 PM | Reply | Permalink
There is an excellent 1 and 1/2 hour video conference on the financial mess at a Columbia Univ. site linked below with Soros and Roubini (who predicted the meltdown) at:
http://www.earth.columbia.edu/worldeconomy/
Bottom line Soros says lack of regulation resulted in all parties joining in the 'party' of the housing bubble, and Roubini says with this and maybe another 'rescue' bailout we may be 'lucky' and have only an 18 to 24 month recession.
October 23, 2008 11:20 PM | Reply | Permalink
Ellen: Good point. How can we expect shareholders to be responsible, or knowledgeable, when they often hold their shares for 10 seconds, even less? Of course we need regulation, for the obvious reasons that some, even all of us, are greedy. Sinful. Remember that idea? One of the regs should be that anyone who owns a stock should have to hold it for a period of time, maybe a year. My suggestion: at least one voting cycle.
October 23, 2008 11:48 PM | Reply | Permalink
It has been many years since stock market purchases were investments in any real sense of that word. They became gambles once most stocks stopped paying dividends, and most corporations began to be about nothing but converting those gambles into winning gambles for the biggest gamblers.
If you hold several hundred shares of stock in almost any corporation listed on a stock exchange you have zero voice in the operation of that corporation. All you are doing is gambling that the price of the stock you purchased will go up when someone believes it is an acceptable risk at a higher price. You have no way to determine the risk yourself. At least at the horse races you can study the horses, the jockeys, the track and figure out which horses are most likely to win. You fool yourself if you believe you can do that with stock.
October 24, 2008 12:13 AM | Reply | Permalink
2 things nobody mentioned:
1. The executives also had the golden parachutes and bonuses unrelated to performance. They were rewarded for losing money.
2. A lot of smaller banks were much more careful.
October 24, 2008 1:31 AM | Reply | Permalink
I think the lesson learned here if we would dare to learn it is that the whole Friedman/Greenspan market ideology is just that and has no more viability than the Communist ideology. All of these ideologies have the same characteristic and that is the notion that they would work just fine if they were "properly" implemented. In reality, we live in the real world with competing interests, competing ideologies, etc. That is never going to go away unless we descend into a total global totalitarian state.
The answer to this problem is very simple. THINK! It is time to put away ideologies and think about how to make things work better for the greatest number of people on the planet. We have the resources, the intelligence and now we have the impetus. Things can only work if we realize that things need balance. Too far in one direction brings disaster, too far in the other direction brings the same. Life is a play of opposites: we need to recognize the opposing forces as something to be dealt with intelligently and gently. The current polarization that we see is destructive (on both sides) and needs to be addressed. Instead of having "left wing" and "right wing" think tanks we instead need real think tanks which have no ideological slant. It's a time for real pragmatism.
October 24, 2008 12:10 PM | Reply | Permalink
Thank you for a refreshingly honest description of the events. Many other credulous news articles are claiming Greenspan's failure was a function of his naive adherence to Rand's philosophy. That is utterly false, as you've rightly pointed out. Saying that a central banking guru is an advocate for laissez-faire capitalism, is like saying a dictator who rigs elections is an advocate for democracy. For any honest person it is untenable.
For a more in depth critique I recommend the following post starting at the 7th paragraph:
http://www.dianahsieh.com/blog/2008/10/getting-rand-wrong.shtml
October 24, 2008 3:57 PM | Reply | Permalink
There Ain't No Such Thing As A Free Market.
October 25, 2008 12:08 AM | Reply | Permalink
The article asks, "What would Ayn Rand expect to happen? ... Ayn Rand would watch the Wall Street big boys run roughshod over their shareholders' interests and be applauding them every step of the way. ... If Greenspan didn't think the Wall Street crew would rip off their shareholders for every last penny, then he was not a worthy disciple of Ayn Rand."
DID Dean Baker EVEN READ ANY AYN RAND?? DID HE READ RAND'S FAMOUS "ATLAS SHRUGGED"?? Apparently not. If he had, he would realize that villains in the novel are the type of businesspeople discussed above: running to government for favors, manipulating the public perception through board statements, palming off junk in "fly by night" operations. Yes, heroes of the book are also businesspeople -- with a key difference: they are honorable, take long-term risks, suffer their losses as the results of their own failings, don't make demands for government manipulations, etc. One of the heroes, knowing that others are copying his stock-picking expertise, deliberately takes a loss to create a lesson for the followers who blindly take this course towards financial disaster. (This is in an atmosphere without government bailouts, so the losses are the followers' own.)
Which part of the above aspects of Ayn Rand's "Atlas Shrugged" reminds you of today's news figures and which do not? It should be apparent that Ayn Rand would not approve of the bunk being said to represent her.
October 25, 2008 4:04 PM | Reply | Permalink