Some prankster must have pasted a Post-it note saying "kick me" on the back of Alan Greenspan's shirt. He seems to be getting the blame for the sub-prime mess because he failed to consider that unbridled capitalism has a tendency to eat its seed corn periodically.
His autobiography, "Alan Greenspan — the Age of Turbulence" starts out by discussing his early days spent in the New York salon of Ayn Rand, the novelist and philosopher who wrote "Atlas Shrugged" and "The Fountainhead."
Getting only that far, I set Greenspan's book aside and picked up a dog-eared 1,200-page copy of "Atlas Shrugged." It was just as I remembered from my first reading about 40 years ago. Philosophically speaking, anyone working for the government is a bumbling idiot, and industrialists working in collusion with the government to create dysfunctional monopolies are even worse. The heroes are charismatic people who work independently and who manage to succeed in spite of government interference and the palace intrigue of what Eisenhower labeled, "the military industrial complex." In Ayn Rand's world, it was collusion between government and railroad people.
So it stands to reason that Mr. Greenspan's early influence, if he were still running things, would prompt him to ignore the machinations of the mortgage market and let the invisible hand of capitalism sort things out. According to reports, the recent taxpayer bailout of Bear Stearns was not a unanimous decision of the Federal Reserve Board.
The "panic," if there really was one, was only on the part of those Wall Street companies that had borrowed short and loaned long. Warren Buffett has been saying all along that there is plenty of money looking for borrowers, and local banks across the country weren't having problems. Well-run banks like Wells Fargo, where Warren is the biggest stockholder, are doing fine.
Greenspan's general approach may prove to have been right after all once we get beyond the panic stage. Lenders and borrowers who lied to each other are being washed out of the system, along with the investors who bought the hype without doing any due diligence. We all suffer temporarily until some level of equilibrium sets in.
What impresses me about Greenspan is the extent to which he was able to convince politicians to do the right thing. He pointed out huge problems that would result from the deficit back in the first George Bush presidency and he convinced the president to raise taxes at a time when government spending just couldn't be cut. (The government debt at the time was $3.7 trillion. Today it's $9 trillion and rising fast.) He kept at it with Bill Clinton who finally was able to reduce spending and who raised taxes further until we had almost no government debt eight years ago and historically low interest as a result.
In fact, at the rate of our positive cash flow, a government surplus of $3 trillion was projected by the end of the decade.
Clinton's State of the Union speech in 1998 proposed that the money be spent to shore up Social Security.
Speaking of which, the largest single tax increase in American history was the Reagan-era increase in the Social Security tax. This was an increased proposed by Greenspan in 1981 when he was asked by the president to take the lead in "dealing with a colossal headache."
The problem stemmed from the Nixon-era cost-of-living index that Congress voted to apply to retirees' checks. Remember those years in the early '80's when inflation ran as highest as 18 percent in a year? I remember magazine articles at the time that cited the charmed life retirees were enjoying as their Social Security income ramped up. My father, pulling his first check out of the mailbox around that time, shouted, "I'm rich!"
Greenspan's book reads like a novel and prompts anyone to appreciate his contribution to the financial success and stability we have enjoyed as a country for most of his tenure as a public servant. I'm afraid I did refer to him as a political hack a few years ago when he rubber-stamped the current practice of cutting taxes and running up our total debt to $9 trillion — increasing now at over a half trillion dollars per year and bringing more government expansion than ever.
Where was that Ayn Rand influence when we needed it?