Saturday, October 25, 2008

Greenspan Concedes Error on Regulation

From the New York Times:

For years, a Congressional hearing with Alan Greenspan was a marquee event. Lawmakers doted on him as an economic sage. Markets jumped up or down depending on what he said. Politicians in both parties wanted the maestro on their side.

But on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.


“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

On a day that brought more bad news about rising home foreclosures and slumping employment, Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken.

More here.

This really is quite remarkable.

We are currently witnessing the dissolution of some of the central premises underlying the free market philosophy which has guided US economic policy and American politics in general for decades. I mean, this is fucking Alan Greenspan, for god's sake, the Ayn Rand worshiping, let-them-eat-cake, free market fundamentalist guru of gurus himself. When he starts having doubts about free market economics, you can bet your 401k that free market economics are in doubt.

I know I've mentioned it here before, but I can't help but remember what my old pal Matt told me shortly after the Berlin Wall fell: a historian who had predicted the collapse of communism in the early 80s had also predicted the collapse of capitalism, which seemed near impossible back in 1989. It doesn't seem so impossible today. Indeed, I would go out on a limb and say that, even though capitalism isn't going to die as thoroughly as Soviet or Maoist communism did, the ideologically purist version of it long celebrated by the political class in the United States is dead. Nobody with a clear head now believes that government interference in the economy is inherently a bad thing. And that's a good thing.

I do worry, however, about all those Americans and politicians without clear heads. Free market fundamentalism has always been as much of a tribal culture as it has been an economic philosophy. Billions have been spent indoctrinating Americans into the belief that what's good for Wall Street is always what's good for Main Street--indeed, my above mentioned buddy Matt and I once attended during our senior year in high school a Rotarian hosted radical right-wing economics weekend seminar which was disguised as a training session for public speaking; who paid for all those economists we hung out with?

Millions of Americans don't understand what's going on. They cling to their false belief in the magic of the market in spite of all the evidence currently being rammed down their throats. They think it's a liberal plot, or they think the cure is still more deregulation, or more tax cuts, or whatever. To them, it's not about logic or reason: to them, it's about good Americans, the pro-capitalists, versus the bad Americans, the stupid liberals who are secretly communists. It's about us and them, about identity. Can these people ever be convinced that they've been duped? The right-wing indoctrination apparatus has done its job all too well.

I'm probably being afraid of nothing here. After all, an electoral college landslide victory for Obama appears to be in the works, and his coattails may very well provide him with a filibuster proof majority in the Senate. My greatest hope is that public sentiment ends up pushing the wussy Democrats in a much more progressive direction once they realize how much power they've amassed. But the Maoist/Stalinist GOP dead-enders aren't just going to fade into the woodwork. They'll still have a voice in Congress, and on cable news shows, especially they now obviously psychotic FOX News.

When will these people understand that it's not this or that ideology that's to blame, but the very notion of rigid ideology itself which harms us most? When will these right-wing ideological purists embrace the obviously necessary philosophical relativism they've despised for so long, in order to embrace an obviously necessary hybrid capitalist/socialist economic model? 'Cause, mark my words, that's what we're going to need if we're ever going to have any economic and social stability in the long run.