Greenspan’s Reputation in Ruins—Deservedly So

So there is justice in the world. The biggest bubble blown in the recent past—Alan Greenspan’s reputation—has finally been pricked.

Greenspan’s judgment was long thought to be infallible. Along with the markets, however, his standing has crumbled, too.

Greenspan’s reputation had already taken a bit of a hit in recent years when he acted as a partisan hack and supported both Bush’s tax cuts and GW’s Social Security privatization plan. But the recent financial crisis has created doubts about something larger—his entire term as the Fed chair.

The latest blow to his legacy is a front-page article in the New York Times on October 9. It notes that from the start of his chairmanship, Greenspan repeated just one mantra: deregulation, more deregulation and even more deregulation. Not only did he believe in giving the market unbridled reign, he vigorously opposed any recommendations by others for better oversight. In a fascinating back-and-forth narrated in the Times, Greenspan in 1997 questioned the sanity of the then-head of the Commodity Futures Trading Commission, Brooksley Born, when she recommended stricter regulation.

“Greenspan told Brooksley that she essentially didn’t know what she was doing and she’d cause a financial crisis,” said Michael Greenberger, who was a senior director at the commission. “Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.”

Ah, that’s important: playing tennis with the very guys whom you’re meant to regulate. (Though given his physical shape, I’m not sure how much tennis Greenspan managed to play even eleven years ago.)

Together with Robert Rubin and Lawrence Summers (two other supposed economic wizards), Greenspan got Congress a few years later to defang the agency that Born headed.

Greenspan still lives in a make-believe world in which he blames the greed of some on Wall Street, not deregulation, for the financial mess, as if the two can be separated.

But, then again, what can you expect from Greenspan? He started adulthood as an acolyte of that dreadful philosopher Ayn Rand and swears by her ideology to this day. I read Rand back in high school and even then found her ideas about selfishness, altruism, ego and identity to be absolute garbage. Any adult who takes Rand’s extreme libertarian drivel seriously ought to diversify his or her reading a wee bit.

In his heyday, Greenspan was so admired that famed journalist conman Stephen Glass invented a story about Wall Street traders worshipping at a Greenspan shrine and The New Republic didn’t even blink. Supposed ace investigative reporter Bob Woodward wrote a fawning biography of Greenspan in 2001 (embarrassingly titled “Maestro”) that he must be fervently wishing he could write a sequel to undo, the way he did with Bush. The entire financial world would listen to Greenspan’s opaque congressional testimonies, which came across to me as gibberish, as if he was the Oracle of Delphi. (Indeed, he was nicknamed the Oracle.)

Not very many people are referring to his Delphic qualities anymore. Instead, Greenspan is being subjected to frequent pummeling.

Economists such as Joseph Stiglitz and Paul Krugman are strongly criticizing him, as progressives such as William Greider, Robert Pollin and Dean Baker long have.

“Key regulators like Alan Greenspan didn't really believe in regulation; when the excesses of the financial system were noted, they called for self-regulation—an oxymoron,” Stiglitz writes in a recent commentary.

In a May op-ed for the New York Times, Krugman wrote, “The back story to the current crisis is the way traditional banks — banks with federally insured deposits, which are limited in the risks they’re allowed to take and the amount of leverage they can take on — have been pushed aside by unregulated financial players. We were assured by the likes of Alan Greenspan that this was no problem: the market would enforce disciplined risk-taking, and anyway, taxpayer funds weren’t on the line. And then reality struck.”

And an extremely unfavorable recent biography, “Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve,” by William Fleckenstein and Fred Sheehan, marks quite a change from the obsequious fare offered by Woodward some years ago.

Greenspan’s reputation finally lies in tatters. Deservedly so.