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Political Cover from Greenspan
The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman has told the Financial Times.In an interview with the FT Mr Greenspan, who for decades was regarded as the high priest of laissez-faire capitalism, said nationalisation could be the least bad option left for policymakers.
This is what is known as "Political Cover" for the Obama Administration. Larry Summers and Tim Geithner were so worried about being tagged "Socialists" by our new McCarthyites led by Rush Limbaugh--that they couldn't say what the obvious answer was--one that even Greenspan can talk about.
Thank you Alan, even if you are responsible for both the tech and the housing bubbles.
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Well considering, its really the least Greenspan could do. Still it would be nice to see a little more forceful language then the mealymouthed: "could be the least bad option left for policymakers."
At least he gets another opportunity to throw his "once in a hundred years" shtick.
February 17, 2009 11:15 PM | Reply | Permalink
For me him saying "least bad option" says it all.
February 17, 2009 11:59 PM | Reply | Permalink
"Larry Summers and Tim Geithner were so worried about being tagged 'Socialists'...."
And you know this - how?
February 17, 2009 11:37 PM | Reply | Permalink
I was thinking the same thing.
I suspect that something is up when Geithner abruptly scrapped his bank plan at the last minute and gave an anemic nonspecific speech on what the plan was and then Obama switched from absolutely no nationalization of the banks in an ABC news interview and then a week later didn't rule it out.
Perhaps that is why Geithner added a "stress test" portion to his plan to see which banks are insolvent and which are not.
Perhaps Geithner/Summers need political cover from someone like an Alan Greenspan who is "respected" and is the right wing economic guru so that they can do what needs to be done.
Expect nationalization to be the talk of the town in the next few days to weeks.
February 17, 2009 11:58 PM | Reply | Permalink
Greenspan, about ten years ago, specifically warned against a budget surplus - it would lead to the US government holding business or real estate assets. In his view this had to be avoided.
After the LTCM/Asia/Russia financial scare of 1998 certain countries (in The Gulf and Asia) decided to redouble their efforts to build up huge reserves of dollar surpluses. From these surpluses came the vast Sovereign Wealth Funds, mostly dollar-denominated, outside the USA.
So just at the moment Greenspan and others decided our government should not own assets, other governments decided the opposite. Today our treasury is begging all over the world for dollars.
Mr Greenspan also agreed with every decision to reduce government regulation of any financial activity. He was sure the financial actors would never destroy their own franchise.
Yes Mr Greenspan is famous - but he needs to answer a few questions. Is he at all culpable for the current disaster ?
Do we need any more of his bright ideas ?
February 18, 2009 12:06 AM | Reply | Permalink
I really, really, really, can't believe that we ever handed the keys to the economy to an avowed objectivist. Did anyone ever read Atlas Shrugged? I mean were talking Maoist level misanthropic crazies here!
Sorry, whenever I look at my 401 this rant just explodes...
February 18, 2009 12:18 AM | Reply | Permalink
I know, I agree - it just gags ya to think about that weird little Ayn Rand cult ...
I forgot to mention that Greenspan's friends in the white house believed, and said explicitly, "deficits don't matter" ...
When Andrea Mitchell is on TV asking questions, I always wonder why the person being questioned does not ask her about her old man's goofy schemes.
February 18, 2009 12:44 AM | Reply | Permalink
I don't remember clearly, but did not 'Doctor' Greenspan manage to give the impression that his flirtation with Miss Rand of Petrograd was a mere youthful exuberance long since outgrown? Wasn't he installed as a vendor of Chicago School snake oil, more or less?
Happy days.
February 18, 2009 12:48 AM | Reply | Permalink
I don't think Dr. Greenspan ever broke ranks with Ayn Rand and her acolytes.
His moneterist policies of the early 2000's were actually a success. He stimulated economic growth without causing inflation, 2 of the 3 mandates of the Fed.
Where he fell on the job was when he refused to carry out the over sight functions of the Fed for what are ideological reasons. The signaling behavior to the financial market was neither the the Bush administration or the Fed was watching the store. I usually don't want the government intervening too much in the market, But IT IS THE JOB OF THE FEDERAL RESERVE as the defacto central bank of the US to provide oversight and if need be intervention in the banking sector THAT IS THEIR JOB. sheesh
February 18, 2009 2:47 AM | Reply | Permalink
now that's bipartisanship i can believe in.
February 18, 2009 12:36 AM | Reply | Permalink
Oh my God, maybe the elite, Greenspan and friends, do understand. Nationalizing the banks should be done. Certainly. Why in the world did we give banking to a rich cadre of theives in the first place? It makes as much sense as turning over the army to them and letting them protect us as they see fit.
I am not at all sure nationalizing the banks will be enough. The root problem is massive debt, private and public. A large percentage of our GNP is being used to service debt owed to the excessively wealthy. We didn't have much inflation because the wealthy just kept rolling over the loans.
The holders of the debt didn't buy more bread and milk, or the other goods that guage inflation. They did, of course, buy yachts and Picassos, both of which "suffered" tremendous inflation. Oh, sorry, no inflation there, just more brilliant investing by the wealthy.
Rolling over the loans will work, did work, untill the interest costs become more than the debtors can pay. We reached that point with a few million home owners in California and Florida, and the mess cascaded from there.
Unless we reduce or eliminate the debt, nothing will ultimately work. Do the math. Read Michael Hudson, PHD in economics. Michael-Hudson.com
February 18, 2009 4:21 AM | Reply | Permalink
Why is no one noting that there is absolutely no systemic reason for this recession that is quickily sliding into a depression?
The entire problem is man-made. Too many people can't buy cars and go on vacations anymore because they owe too much money to the extremely wealthy. That is the whole problem.
What happens if we, as a nation, decide to eliminate all debt by fiat and start over? What happens? A lot of very wealthy people who own banks and government bonds, etc. will be holding worthless pieces of paper. Who cares? Everybody else could go back to work.
That wouldn't be fair to China? They wouldn't trade with us anymore. Well, first of all, I think we could do without them. How in the world did it do us any good, President Nixon, to turn them into an industrial powerhouse?
Ok, don't repudiate the debt by fiat, instead pay it off with newly printed dollars. Classically, that would cause a lot of inflation, but think about it. What sector of the economy would suffer inflation? Not bread and milk. Picassos and yachts would go up in price. So would mansions and condominiums overlooking the water.
Businesses that actually create wealth would go up in value, because all that money that has been "invested" in the financial sector would be freeded to go into the real economy.
February 18, 2009 4:33 AM | Reply | Permalink
They had such a custom in the Old Testament. They called it the Jubilee Year.
February 18, 2009 9:23 AM | Reply | Permalink
I think that is what the Fed is doing but they are using the back door
February 18, 2009 1:22 PM | Reply | Permalink
Saladin, I clicked the link you provided. Very telling chart, isn't it? Evidently, the monetary base has doubled in just the past few months. As you may know, the monetary base consists of actual cash and bank reserves. I am not certain about the reason for this spike, but my guess is that it was caused by the Fed buying up existing government bonds. They bought them with newly created dollars which went into the bank accounts of those who sold the bonds to the Fed. A government bond is not part of the monetary base, while cash is.
As you said, they bought the bonds as a back door way to put liquidity, more cash, into the system.
February 18, 2009 8:20 PM | Reply | Permalink
It's a false premise. No one in the Obama administration or any economists are proselytizing permanent intervention. The goal is to stabilize fundamentally unstable and systemically corrupt systems and practices. Government is the only solution. Nationalizing FAILED insitutions, FAILED models, and replacing FAILED leadership is the only solution!!!.
These government interventions are not chosen, they are inherited and a result of a calamity so dire, and devastating, that no other option is tenable. The Tax cuts Tax cuts Tax cuts Tax cuts Tax cuts Tax cuts Tax cuts babel bruted by the gop is the CAUSE of the problem - not the solutions. Tax cuts only benefit the predator class. What good is tax cut if you are unemployed?
What good is there in tax cuts overtly favoring the superrich, the predator class. Tax cuts that target poor and middle class Americans may help in the short term, - but it is the gainful employment of American poor and middle class that is the key to restoring stability to the markets.
JOBS!!! Employ poor and middle class Americans, or suffer the bloody costly consequences. The predator class must take a haircut, and recognize and absorb losses they perpetuated and blindly bought into. Gainful employment of poor and middle class Americans is the only solution to the economic crisis. Employment!!!
February 18, 2009 6:45 AM | Reply | Permalink
Yeah, I just got laid off too.
February 18, 2009 1:24 PM | Reply | Permalink
This is what is known as "Political Cover" for the Obama Administration.
Unfortunately, Greenspan's reputation is not at its highest tide right now.
February 18, 2009 7:18 AM | Reply | Permalink
True. Don't know what his current cache is with Republicans but if others in addition to Sen. Graham can signal a willingness to open up the options that are being actively considered that seems all to the good.
February 18, 2009 9:37 AM | Reply | Permalink
Well let's not hope they take all of Greenspan's advice to heart. He is a Pimco consultant, so he's not neutral about how any nationalization takes place.
February 18, 2009 8:15 AM | Reply | Permalink
Bad headline. It should read, "Hell Freezes Over."
When an acolyte of Ayn Rand calls for nationalization....
February 18, 2009 9:37 AM | Reply | Permalink
These guys have gotten us to this spot and we still have a gut reaction to listen to them? What are we doing even giving them time. In the past society would have shunned or banished them (Although some might have been beheaded) Sorry between Greenspan, Cheney, Rove and the rest of them this country gets the worst advice.
By the way Andrea Mitchell should also recuse herself for conflict of interest. The whole bunch of them have a conflict of interest. Some of them want to prove they were not wrong and the others are in denial.
Please tell all these failed people to go into retirement and let the next generation do it's job. They have done enough damage.
February 18, 2009 9:45 AM | Reply | Permalink
muffler: I think what Jon Taplin is trying to say is not "follow Greenspan's advice" but rather use the fact that Greenspan is now saying temporary "nationalization" of the banks may be the least bad option to politically open up the range of options along those general lines that can be seriously considered.
Because, you know, the alternative isn't do nothing. It's probably more along the lines of the failed, extremely expensive, and unpopular fall bailout.
February 18, 2009 10:23 AM | Reply | Permalink
There is no systemic reason for this recession. We do not have famine, or a shortage of labor, or a lack of natural resources. The entire problem is with our medium of exchange. Our money is the entire problem.
Reduce the situation to a more understandable level: 20 families get shipwrecked on an island. After a time, they separate labor. One family fishes, one farms, one makes clothing, etc. Of course, they need a medium of exchange. The smartest of the group decides to open up a "bank". He creates a piece of paper, which on its face is worthless, but he convinces everyone to accept it as valuable. It is money, and it has value, because each family accepts it as a medium of exchange. The new system works great, now they don't have to make 3 and 4 way barters. The clothing family that wants fish can sell their clothing to the farmer and use the money to buy fish.
The banker eventually gets into the loan business. He accepts deposits from the islanders who have excess cash, but he loans out more than the deposits. He calls it "fractional reserve banking" and it is kind of a secret to everybody but him.
Well, all the families work hard, but there are weather problems, and health problems, and the fishing went bad after awhile. They each borrow to get over the bad years, and to expand their businesses, and, sure some of them borrowed more than they should have.
After awhile, everybody owes the banker more than they can pay. He takes over all the property they once owned. Now they all work for him. And, he makes everybody work about half the hours for his benifit. They have to build him a couple of big mansions and a big boat. They clean his houses. Etc. Everybody's standard of living is way down, except for the banker.
What is the solution to the above? It is pretty simple, really. Take over the banker's bank, print a bunch of his money and pay him off. Then tell him to go get a real job.
February 18, 2009 10:12 AM | Reply | Permalink
Damnation! I wish everyone would cool it with the "print a bunch of money" ideas. They did that in Weimar Germany - and needed wheelbarrows to take home their paychecks. Wildly inflated $1 billion-mark notes wouldn't buy a loaf of day-old bread.
This economy began to go south when bankers sliced off a portion of their earnings to pay lobbyists, who convinced lawmakers to approve legislation ensuring the banks would never lose money; this would include scams like adjustable (and uncapped) interest rates with the cover story of "allowing finance access to low-income borrowers" (then fleecing those luckless "marks" tooth and nail).
Even then, their greed helping puff up the market bubbles led them off the cliff. It's not a money problem. It's a human problem. We can't leave the rules to the institutions those rules are meant to control. We're all greedy, to a degree. But not all of us get to benefit from that signal flaw.
February 18, 2009 2:34 PM | Reply | Permalink
You are wrong Curt. You are only repeating what the Chicago School has preached the last 40 years. This ain't Weimer Germany. Printing dollars to pay off the debt would not cause rampant inflation of basic goods. At least, it wouldn't unless we let the Wall Street Crowd buy all the bread and milk then sell it back to us at their new price. (Like they have done with their paper oil contracts)
Inflation is caused by two principals: supply/demand and the volume of money x the velocity of circulation. We have all the basics we need for our society. Plenty of food, clothing, shelter. The demand will not go up just because there are more dollars out there, and the supply will not go down. Germany had horrible inflation because they had way too many marks (were they marks then?) chasing the essentials, like food. Read the history. Germany had a food shortage, because of other problems, like wars. All of the above is Econ 101, and History 101. Don't take my word on it, take the word of the PHD's in economics who say the same - such as Michael Hudson.
Now, when the rich and beautiful get their billions of new dollars, there will be too many dollars chasing Picassos and yachts, and those goods will go through inflation. I would say that some of the rich will probably lay off the night butler, but those of us on the other side won't pay more for bread and milk. Remember, Econ 101? Inflation is caused by shortages, the volume of money, and velocity of circulation. Take away just one of the 3, and inflation goes away. We have no shortages.
I suggest you study all this for yourself. The banksters and their cohorts from the Chicago School have put out their invalid scare tactics so they can continue their scam. They are taking over this country, and they must be stopped. If we don't make the wealthy pay for this recession/depression, we are going to be another Mexico with a few very rich and the rest of us working for $2 a day.
February 18, 2009 7:59 PM | Reply | Permalink
However, regarding your other two paragraphs; I agree completely.
February 18, 2009 8:06 PM | Reply | Permalink