All economic and political institutions are contrivances that should serve the interests of the people. When they fail to do so, they should be replaced by something more responsive, more just, and more democratic. Marx said this, and so did Jefferson. It is a revolutionary doctrine, and very much an American one.
It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
In Brief: For those who are looking, the critical nexus between America’s penchant for foreign military adventures and imperially inspired hegemony, and the workings of the global financial system and economy is becoming as obvious as it is unsettling. Yet this exertion of influence via the twin pillars of geopolitics and economics has long been characteristic of power projection in the imperial narrative, not least in that of the British Empire, from whom the U.S. drew its greatest inspiration. For this reason alone it is important we continue to explore the history of the Global Financial Crisis (GFC) and the political economy in general. This will be a recurring theme in our analysis of and commentary on, people, events and developments in Pox Amerikana, both past and present.
– From Rational Self-Interest to Irrational Exuberance –
With the global economy once again teetering on the edge, it would appear few if any lessons have been learned from its near-death experience brought about by the Global Financial Crisis (GFC) in 2008. That said, it is perhaps time to once more reflect back on the events that kick started the GFC, and on some of those people responsible for creating the conditions that precipitated this economic calamity.
Although the culprits are many, outside of the Wall Street monoliths one man stands out as the poster boy for nouveau laissez-faire economic recklessness, and an exemplar of those in official positions whose principal responsibility we all thought was to ensure economic stability and financial prudence, yet one who unequivocally failed in that duty. That man was Federal Reserve Chairman Alan Greenspan. Had it not been for Greenspan it’s doubtful the Jamie Dimons, Dick Fulds and the Lloyd Blankfeins and their ilk would’ve been able to perpetrate the scams on the scale they did.
Firstly, a little background. As it has so many times before in its sometimes great and glorious history, in the latter half of 2008 and with the GFC looming, America was once again locked into serious damage control mode, a ‘victim’ of sorts of the unforgiving, immutable Law of Unintended Consequences, in this instance, [of] economic blowback of the worst possible kind. This, not to mention being a ‘victim’ of its own collective mix of recklessness, arrogance, self-interest, and hubris, a mind-set and predisposition that was perhaps personified by central banker Greenspan, and associated with his monetarist, ‘voodoo’ economic mantra.
With his hitherto unimpeachable legacy still intact after he retired in 2006, up until the onset of the GFC though, Greenspan still looked like he would live out the rest of his charmed life as an icon of the free-market, albeit one who changed the course of history more by what he didn’t do than by what he did do. In the cold light of 2009 though and well beyond, the Guru’s ‘street cred’ has taken a hammering with all but his most ardent admirers, of which we can assume there are still plenty. That said, the present reality though of global instability and uncertainty – now bordering on chaos – may suggest otherwise.
One of the key observations that cannot be over emphasised is the fact that no-one – apart from the Ponzi King Bernie Madoff, of whom more later – has ever been charged or prosecuted much less found guilty or done some serious time, or for that matter held accountable even if only in the court of public opinion. And no-one has come close to admitting any wrongdoing. For his part the Fed Chairman when fronting a 2008 Congressional inquiry into the GFC did offer a ‘mea culpa’ of sorts.
The look on Greenspan’s hangdog face was in marked contrast to the time when he received the Presidential Medal of Freedom from president George W Bush in 2005 presumably for his services to the economy and the finance industry, and the nation as a whole. It was at this hearing that Greenspan – who again judging by the look on his lived-in visage we can safely assume would have preferred to be somewhere else – gave the first indication the free-wheeling ‘n dealing, no-holds-barred, free-market ideology that he’d held dear for over 40 years may have been the wrong call after all.
When committee Chair Henry Waxman asked the Wizard of Wall Street if his economic potions, spells and hocus pocus might have a downside, his response was an unequivocal ‘yes’, by far the briefest, clearest and most candid, memorable response he’s ever given in any public or official forum. The Guru of the Greenback though was at a fork in the road, his hitherto unchecked hubris stopped in its tracks by his Congressional True Confessionals appearance. Youtube it below and see what we mean!
One suspects though the Maestro of the Money Markets was “stopped” in said “tracks” much earlier, possibly around twelve months before when it suddenly dawned on him and many others of similar economic and fiscal persuasion, they, along with billions of other folk, were witnessing the US financial system imploding and – seemingly inexorably before their very eyes – along with it the potential collapse of the entire global financial system and world economy. For them and the rest of us then, an epoch defining, monumental catastrophe unfolding in real time, and whilst at that time they may not have conceded as much, it was one they must have known was very much of their own making.
Either way, Greenspan’s extended Congressional cameo was in some ways a reprise of his ‘Houston, we have a problem!’ moment a year earlier, the significance of which cannot be understated. A bit like Hank Ford admitting after he retired that the internal combustion engine was not such a good idea after all and the production line may not have been the most efficient way to assemble the Model-T’s said engines were destined for. In any event, such hypothetical admissions at the time might have come too late and not have made much difference; in the former Fed Chairman’s case, this was decidedly so, as the damage was already done. Big Time! Thanks for the heads up Al! Surreal stuff indeed!
– The Big Swinging Dicks of the Big Sting ‘n Fix –
Greenspan’s tenure has since become defined more for what he let others do that they should not have done, and by what he allowed them to get away with. For his part Greenspan was dismissive, indeed derisive of those who tried to warn of him of the danger signs – particularly evident during periods of economic volatility, of which there were plenty under his almost two decade long watch – once labeling aggressively bullish, risky, unethical, even legally suspect behaviour in the markets as little more than “irrational exuberance”. Of course this phrase entered the vernacular of market capitalism and more or less defined it at the same time, but it was nothing more than a slap on the wrist. It was hardly a pointer to any change of heart on his part, and did little to curb said ‘exuberance’ of the Street’s ‘big swinging dicks’ (BSD’s). The fix was already in. The sting ‘a done deal’.
For good measure presumably, Greenspan even went one step further. He actively cautioned other ostensibly more prudent observers and concerned regulators to view the rampant mismanagement and fraud in the financial industry as an acceptable part of how business is done. The clear message was to lay off suspected fraudsters, whether they were individuals or corporations. ‘Let the market sort them out’ was the mantra, which in hindsight is an extraordinary stance, even for a die-hard free marketeer like The ‘Grimster’.
It was a hard-core fact of life in Washington and Wall Street, that high profile and principled government regulators who challenged the Greenspan orthodoxy throughout his tenure did so at their occupational peril. In one of several glaring examples, Brooksley Born, the then Chair of the Commodity Futures Trading Commission, during Bill Clinton‘s second term had her career destroyed for daring to do so. In her case it was her expressed concern about the lack of regulation involving the so-called ‘over-the-counter’ (OTC) derivatives markets, which themselves went on to become the primary trigger of the meltdown. At first Greenspan and his acolytes such as Clinton’s then Treasury secretary Robert Rubin and his deputy Lawrence Summers – both of whom were umbilically beholden to Wall Street and epitomised the Revolving Doormen that travelled between the Street and the Beltway – tried to ignore her, then they tried to shut her up, and in the end they shut her down.
Outside of the regulatory domain, at the time there were also plenty of folks from free-market supporters, to skeptics, denialists and outright heretics who dared to openly challenge the Greenspan Gospel. Some of these people included uber-investors like Warren Buffet (who coined the apt descriptor of derivatives as ‘financial weapons of mass destruction’), and high profile economists such as Joseph Stiglitz, Robert Reich and Paul Krugman. While that might have added credibility to the misgivings and concerns, apparently no one – at least those who could and should have done something – was listening.
Again, a stroll down memory lane is necessary here.
It was POTUS Number 40 Ronald Reagan whose own economic policy views were a perfect match for Greenspan’s, who nominated Greenspan to the position in 1986. So it was something of a no-brainer appointment for The ‘Gipper’, it being by most accounts the kind of decision that the Old Hoofer always preferred. And every president since Reagan retained Greenspan’s services, and in doing so implicitly endorsed the free-market rational self-interest philosophy that Greenspan was always so ‘jiggy’ with. This was especially so in respect of deregulation. To use the Gipper’s own words, it was time to “let the bulls run free”. And Greenspan made sure the bulls kept running free even after 2004 when The Gipper ‘bought the farm’ as it were.
Interestingly, Greenspan’s 1977 doctoral thesis includes ruminations on, of all things, soaring house prices and their impact on consumer spending, and even anticipates a bursting housing bubble and its consequences (think the Savings and Loans Crisis cum debacle of the late ‘80’s and more recently, Freddie Mac and Fannie Mae).
With the benefit bestowed by hindsight, this of course went on to resemble one of history’s most consequential of self-fulfilling prophecies, which along with the lack of regulation in OTC derivatives was one of the key reasons for economic collapse. Moreover, Greenspan was infamous his elliptical or evasive responses to questions related to his particular brief. He was once quoted as saying the following:
‘Since becoming a central banker, I have learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.’
An even more telling anecdote about The ‘Great Mumbler’ paraphrased herein is the following as told by Bill Still – the writer and narrator of The Money Masters, a masterful, insightful 1996 documentary on the history of the US banking and financial system – in a 2011 UK interview. When a senator was asked by a journalist as to why he voted for Greenspan’s appointment in 1987 at his first confirmation hearing upon his nomination, he replied along the following lines:
‘Well to tell the truth we didn’t understand a word he was saying, so we figured he knew what he was talking about”.
In any event, from the late eighties onwards until his retirement in 2006, Greenspan was the ‘go to’ man in international central banking circles and US economic policy planning. He was the arch economic rationalist and the only central banker who wore a greenback cape with his undies on the outside of his ‘trou’. He may not have owned the Monopoly board, but he determined the rules of the game.
For Greenspan, the only rule was that there were no rules. Nonetheless, whilst he had his share of detractors even during his own halcyon days, as noted Greenspan’s stature and credibility was such that he remained unimpeachable for almost two decades. This along with his own unshakeable conviction that he was right and his critics were wrong enabled him to duck the slings and arrows of outrageous political opponents, sceptical financial commentators and economic Cassandras who did not share his worldview.
Although his tenure wasn’t anywhere near as long, in many ways Greenspan was to the American financial system what J Edgar Hoover was to American law enforcement; like Edgar, he also spent his whole career denying the bleeding obvious (the existence of the Mafia in America in Edgar’s case), at least until it was far too late. (History though does not record if Greenspan shared Edna’s alleged fondness for lippie, high heels, pantyhose, and a good frock-up on his RDO! For those of us inclined to do so, we can all but speculate on this.)
His approach to the markets and economic management was derived from the Milton Friedman and Ayn Rand ‘school’ of ethical philosophy, although in practice there was little that was “ethical” about it, with said “’school’” more like the economic equivalent of a madrasas.
Much has been written about Friedman of course over the years, possibly less so about ‘philosopher’ and author Rand, even though her influence was in many ways as pervasive and consequential as Friedman and his ilk. Rand’s objectivist philosophy was (in)famously portrayed in iconic novels such as Atlas Shrugged and The Fountainhead, and it is objectivism that underpins free-market principles.
It is closely associated with carnal capitalism, libertarianism, economic rationalism, utilitarianism, individualism and several other even more arcane ‘isms’ than one could poke a stick at in a month of Black Mondays such as ethical egoism and – wait for it – epistemological realism. At its core though, we’re talking a ‘frocked-up’ version of laissez faire, the Dark Side of economic altruism!
So “irrational exuberance” turned out to be Famous Last Words then? Something along those lines! That that “irrational exuberance” subsequently brought the US economy to its knees, and with it the world economy to the brink of disaster is self-evident in a Declaration of Independence kinda way. Be that as it may, we should never understate the significance of this event, nor should we forget that Greenspan (who has never been fully held to account), may have been the one person most singularly responsible for the Crisis and its aftermath.
– The Conclusions of Lunatics –
There can be no doubt that this development – at the time, a worldwide seismic shift in the tectonic plates ostensibly holding together the global economy and the financial and banking system which is the engine of that economy, and one whose only close precedent was the 1929 Wall Street collapse and subsequent Great Depression – is far from over, as present events would strongly suggest.
Like the Depression, and even without another economic calamity of similar proportions in the foreseeable future, the consequences will be with us and our descendants for decades. Again, not unlike the Great Depression, the Great Recession (or Stagnation) was preceded and facilitated by the most glaring, self-serving, costly and destructive examples of public policy authorship, empire building and legislative vandalism supposedly done in the name of economic and financial reform and [in] the ‘interests’ of the country.
And it was accompanied by regulatory and compliance oversight failure, mismanagement, and unadulterated fraud – an unholy trinity of nonfeasance, misfeasance and malfeasance – that was ever perpetrated, indeed inflicted on the vast majority of American citizens, voters and taxpayers, specifically that of the deregulation of the US financial services industry.
In effect, over almost three decades, the free marketeers, Laissez-Faireys and their simpatico libertarian brethren tore out every sensible page from the Keynesian economic rulebook, and which we now know was their intention from the ‘off’. The notion that markets are infallibly self-correcting purportedly via Adam Smith’s ‘invisible hand’, and work best without ‘artificial’ regulatory limitations placed on it by governments became the inviolable, inarguable mantra, the Fed’s modus operandi (MO).
Such notions were to prove to be nothing more than – to borrow from John Ralston Saul – the ‘conclusions of lunatics’. The “invisible hand” was reaching into the all too real and visible pockets of the American middle class, which for those who have actually understood Smith’s intentions, was not exactly what he had in mind. This aforementioned “rulebook” was the one by which the economy had been managed certainly throughout the post-War years and more or less up until the end of the 70’s, and by which the biggest Wall Street banks and US financial institutions in the country generally conducted – and was expected they would conduct, ethically, legally, equitably and with due diligence – their core business.
Dispensing with the “rulebook” though turned out to be the economic equivalent of doing away with all the road safety and traffic rules, laws and regulations and the associated fines and penalties, the express aim of which was making it easier for all those negligent, irresponsible, inconsiderate, and dangerous drivers to get from point A to point B more efficiently and faster because they no longer had to think about complying with any rules much less the consequences of not abiding by them, and that as a result of all this ‘reform’ the economy would be more efficient and less restrictive and society more cohesive and equitable.
As indicated, it was Reagan in 1981 who first began tearing out those pages of the Keynesian economic rulebook that had dominated post war economic activity and endeavor and the financial affairs of Western nations. Reagan’s unreserved belief that the private sector, private enterprise, low taxes for the wealthy, and the profit motive is the answer to America’s ‘problems’ was to have an extraordinary impact not only on how domestic and foreign policy was developed; it became the primary foundation of economic policy and financial regulation in general, and particularly that which affected how America’s insurance, investment and banking sectors operated. At the international level it also underpinned – and provided enormous impetus to – the bourgeoning globalization trend.
As a result it became the de facto economic philosophy of most Western liberal democracies, most of whom were all too eager in varying degrees to chug-a-lug the Kool-Aid of Reaganomics. This included Britain, and my own country Australia, amongst others. For those that didn’t come to the party willingly, especially the ‘tin-pot’, ‘piss-ant’, debt-ridden, third world basket cases, the United States – essentially via the World Bank and the International Monetary Fund (IMF) – didn’t leave them any choice but to get with the program of economic and fiscal shock therapy freely prescribed and expensively administered throughout the Reagan era and well beyond.
– No Skin in the Game –
Indeed, holding hands Hansel and Gretel-like with his ideological soul-mate UK Prime Minister Margaret Thatcher, Reagan’s view of the world and how it should work was to leave behind a profound and lasting legacy not just for American ‘posterity’, but that of the rest of the world (ROW). In much the same way both of them become the geo-political standard bearers for the fight against Evil Empire ‘expansionism’, Ronnie and Maggie became the political spruikers for the ideologies of such dogmatic, militant ‘free-market econophiles’ like Friedman and their ilk. It represented nothing less than another perfect manifestation of the nexus between geopolitical design and global economic ambition.
In fact with the possible exception of the requisite happy ending, Ronnie and Maggie were indeed – in a Bizarro, inverted kind of way – very much like the Brothers Grimm’s eponymous heroes lost in the forest of voodoo economic theory with the Keynesians duly assigned the role of the Wicked Witch, and eventually banished for life. Although the ‘Wicked Witch’ ended up dead by the eighties, it didn’t matter; it was arguably the ‘forest’ that was the enemy all along, which both leaders may not have seen because of the trees in the way. And in the wake of the money meltdown in 2008, many expected the ‘Wicked Witch’ might soon enjoy – like that other fabled fairy-tale character Snow White – a spectacular reanimation. But the handsome prince keen for a good old ‘snoggin” has yet to put in an appearance.
Again, like the characters of the Grimms’ enduring fable, The Gipper and The Iron Woman did leave a trail of breadcrumbs behind them, but it wasn’t necessarily because they thought they might need to follow the trail back home if they got lost. It was to create the illusion for everyone else that there would be a way out of the forest if they were left behind in the wake of Maggie and Ronnie’s ‘trickle down’ economic revolution. By the time said “illusion” inevitably dissipated, by their own reckoning Ronnie and Maggie would be out of office and, in the Gipper’s case, on the wrong side of the turf.
As for the “breadcrumbs”, they are an apt extension of the earlier metaphor for the only significant evidence of the much-ballyhooed benefits of the so-called ‘trickle down’ effect (TDE) of their cherished policies years after they both rode off into the political sunset. With this in mind, in reality the GFC of 2007-2008 should have been the final nail in the coffin of the neo-laissez faire policies first espoused and enacted by The Gipper throughout the eighties and were more or less maintained – indeed, in some cases, ‘improved’ upon – by all presidents and all parties until now, “now” representing the fag-end of president Obama’s White House tenure, the man who as we’ve noted previously promised to clean up Wall Street.
Which is to say, “Oh that was the case”! The bit about the “final nail” I mean.
One of several mantras that defined Reagan’s economic policy – the much vaunted Reaganomics, itself an integral part of his overall political shtick – that of the aforementioned TDE aka the ‘rising tide that would lift all boats’, the foundation of supply side, monetarist economic policies becoming fashionable at the time – was, by any measure, decidedly more a torrent than a trickle, and said “torrent” was going up not down. Unfortunately for the ostensible beneficiaries of the TDE – America’s middle class and less well off – it took them almost thirty years before they smelt a rat. And by the time they did, said “rat” was not only well and truly on the nose, it had even eaten all the breadcrumbs.
Which is to say, the ‘rodent’ – deviously yet cleverly disguised as the much touted “’rising tide’” and its alleged economically liberating, uplifting, even enriching powers for the lower and middle classes of society – was, in its plotting, execution and final outcome history’s most successful economic shell-games. A sleight of hand of the first order, a monumentally duplicitous act of legerdemain almost three decades in its incubation, it was the ultimate sting, orchestrated by none other than the Maestro of Moolah, the Fed Stingmaster himself, Greenspan.
Somehow though no-one connected the dots between the deregulatory foundations underpinning the Laissez-Faireys worldview and this instability and inequality, despite the fact there were several ominous clues throughout this period that everyone studiously ignored, overlooked or refuted. In a nutshell, the GFC was the inevitable end result of a Ponzi scheme to top all such schemes.
What about the so-called Ponzi king himself, Bernie Madoff I hear you ask? By comparison, a bit player, an also ran! A small fish in a very big sea! Yet, credit where credit’s due (sorry), Bernie, according to some analysts, kept all his Ponzi ducks flying in a row for over 25 years, well out of range of the regulatory shooters. By any measure that’s no mean feat!
This, notwithstanding the on-going suspicions of many key industry players and insiders, and despite several investigations by regulators over the years as to how he was able to consistently achieve such phenomenal returns for those corporate, institutional and individual investors who subscribed to his $60+ billion shell-game, and who saw him as something of a financial alchemist if not a certifiable investment genius.
Even after he was ‘nicked’ by the Feds, Madoff took the opportunity to bitch-slap the Securities and Exchange Commission (SEC) ‘plods’ for not properly testing his alchemical formula, saying that he expected to get busted every-time they stuck a camera up his scheming, scamming ass, ticked all the right boxes, and gave him a clean bill of health and a pat on the back as a bonus. Fortunately for Bernie, the SEC kept forgetting to take the lens cover off said “camera” each and every time. This proved to be mightily unfortunate though for many of the hapless investors who lost their shirts when Bernie’s scam finally unravelled.
Remarkably, he even explained how they could have busted him each time, an explanation apparently so text-book simple, so straightforward, that all the forensic bean-counters, fiscal pointy-heads and other assorted legal and regulatory gumshoes at the SEC and elsewhere whom Bernie was assisting with their enquiries were all, bar none, left with nothing more than an embarrassed, sheepish expression – presumably accompanied by a measure of genuine admiration from some of them – that needed little by way of translation, to wit, “shit, why didn’t we ever think of that”.
D’oh! Surreal stuff eh? You betcha!
Put simply, Madoff would not have been able to indulge his passion for financial alchemy on such an unprecedented scale for as long as he did without the complicity, the lack of due diligence and/or the incompetence of other individual industry players, agencies and firms within and around the sector. This included, amongst others, everyone from the SEC to JP Morgan Chase, one of America’s biggest banks – like many of their competitors, a major beneficiary of the GFC and the subsequent bailout as it turns out – and a lot of other folk in between Washington and Wall Street.
The real news is that an even bigger scam was being played out at the time Bernie was creating new, innovative and non-detectable ways of counterfeiting the greenback. It still is. And it is being played out at the expense of us all, not just the fabled Main Street Americans. Bernie only ‘made off’ with billions – the larger scam involved trillions in one form or another, a considerable proportion of which was the taxpayers’ hard-earned, with the scammers themselves by and large having very little by way of their own skin in the game!
At least when the jig was finally up, Bernie had enough cohones to ‘fess up to his scam and demonstrate a modicum of remorse. A form of ‘karma’ even got him in the end; his son apparently committed suicide as a result of the scandal. This was a tragedy to be sure, made all the more so because it was his sons – whose dodgy operation they’d hitherto been unaware of – [who] forced him to ‘fess up once they discovered what was going down.
And whilst on the subject of “going down”, with a scheduled release date now of 2139 AD (apparently since reduced for good behaviour), he is still doing more time in the can than he and a half a dozen other folk much younger than him have allotted to them, not that this was of much consolation to those who were shafted in the process. But in the final analysis their real beef should be with those who facilitated Bernie’s gargantuan scam.
And there are no shortage of culprits here. In fact some folk might argue that with a stretch like his, Bernie is doing time as well for several other Wall Streeters who themselves ‘made-off’ with tens and even hundreds of ‘mill’ of other people’s money without even being called to account much less doing any time on the Federal dime. Some even got called back to fix the mess they made!
And whilst Bernie is enjoying by some accounts virtual capo di tutti capi status in the Big House as he waits to meet his maker, most of the folk who were responsible for the larger catastrophe in some way shape or form, or at least were guzzling the free-market Kool-Aid throughout this time, have never been held to account, have never been called upon to defend their actions, and have not had to face the legal or financial consequences of either their sins of omission or commission.
And it may just be about to unravel. Again.
As to where is the former Wizard of Wall Street at present? Earlier this year he made some observations about the direction in which he sees the markets and the economy going in general. His predictions were not exactly optimistic. More’s the pity he left it until now to express his more cautious instincts. Again, thanks for the heads up Al.
As already noted, surreal stuff indeed!
We trust you’re enjoying your retirement on the Federal dime.
© Greg Maybury, August 2015