Remember the late 1990s, when Silicon Valley had an audible pulse, and 14-year-olds were making millions with websites? The masses were happily awash in virtual gold spawned by the .com boom. Time were so good, in fact, that people had the time and resources to tar and feather an effeminate president and his hussy intern consort. Then give them book deals.
One infallible face penetrated through the flurry of stock options, morality-based lawsuits, and abalone caviar spoons. It wasn’t a pretty face, but then, they didn’t hire Alan Greenspan for his looks.
The Clinton years were Greenspan’s heyday. He’d appear on TV, larger than life, professing the power of laissez-faire in a voice raspy with Yoda-like wisdom. Who could argue with him? The economy was doing well. The Greenspan God must be right.
Fast-forward the better part of a decade. Banks are falling like dominoes, and guess who people are blaming now? None other than the Greenspan God.
Newsweek’s Michael Hirsh goes at Greenspan with brass knuckles:
Under the Home Ownership and Equity Protection Act enacted by Congress in 1994, the Fed was given the authority to oversee mortgage loans. But Greenspan kept putting off writing any rules. As late as April 2005, when things were seriously beginning to go wrong, he was saying that subprime lending would work out for the common good—without government interference.
…in a 2007 interview with CBS he admitted: “While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late.”
As investigations continue, the emerging truth is that no matter what kind of fancy new paper Wall Street was inventing, its corporate officers knew, or should have known, that the “collateral” backing up that paper was often bogus, provided by shysters and criminals. The one who should have known most of all was Greenspan.
Hirsh goes on to say that the Fed was presented with evidence of high foreclosure rates (suggesting predatory lending practices) as early as 2001. Greenspan, opposed to even the smallest of restrictions, refused to put regulations in place.
So much for the oracle effect. Greenspan looked good during his time, but it’s now clear he was just piggybacking off the market’s success. He correlated himself with the spirit of the bull, but did not cause it.
Now it looks more like he was preparing to eat it for dinner. People see President Bush as stubborn and unwilling to change his beliefs despite heavy evidence to the contrary. Greenspan was the same way, but he invoked the language around the free market, insisting that the market could heal itself.
“Free market” is a concept near and dear to our collective hearts, next to “good citizen” and “productive employee.” Because of the concept’s power, and the vagaries naturally associated with any professional economist, I’m not surprised Greenspan is only now being called out for his oversights. It takes a pretty big catastrophe to realize that the preacher man on the free market soapbox was also standing on a pile of kindling the whole time.
Greenspan’s folly demonstrates two things. One, “free market” is the far end of a spectrum. It is not fact. If someone actually treats the US economy like a free market, it’ll freefall like one.
Two, if someone in either campaign or the administration starts preaching a two-phrase economic solution with the jarring precision of a myna bird, I’m going to assume they’re wrong until proven right.
Even if the media gives them deity status.