July 01, 2013

Why I am a fan of Alan Greenspan, still.

In comments to the last post, Glyph poses a hard question:

I'm curious: why, at this point, would you be a fan of Alan Greenspan?

He's the epitome of everything that went wrong with our financial system: a demagogue who substituted ideology for critical thought. He spoke as if he were an entrepreneur who understood the creation of real wealth by use of the free market, but whose real power and influence came from being a bureaucrat with the keys to the largest fiat money machine in the history of mankind.

A simple answer is found in rephrasing the question -- what is the alternative?

Let me expand on that. I'm not a fan of Central Banking, as many readers will know from my frequent posts. I see Central Banking as inevitably enslaved to the banks, the regulated consumes the regulator (something known in economic literature as the Stigler Conjecture).

But the realpolitik of the 20th century was that Central Banking was the structure of finance. Granted, that we have a central bank, who then is best to lead it?

In the trade, knowledge of monetary policy would probably stand out as the first and highest metric. But, also known as important to Central Banking is the quality of "independence".

Alan Greenspan was a notorious goldbug who became a boutique investment banker. He retained his suspicion of all fiat currencies until the end, and it is this skepticism of Central Banking that established his credentials as an independent thinker. In my book, picking someone who was already suspicious of Central Banking was probably an inspired choice, and this is borne out by his incredibly long career.

If we look for example at Mark Carney, the current most-talked about Central Banker who last month took post at the Bank of England, we see something of the same flavour. He is suspicious of banks by nature, as well as having been a banker with Goldman-Sachs. As I hear it, his time in Canadian public service was marked by keeping the banks on a tight leash, while those south of the border ran roughshod.

To paraphrase the above, Mark Carney thus represents a least bad choice among many worse choices. Need we present examples of the worse choices?

The fundamental problem is still the failure of Central Banking, and its history of protecting the TBTFs and allowing them to bring the system down.

It would be far better if we as a society and economy could ease away from Central Banking, TBTF and all that, but that is likely to take decades. In the meantime, who better to lead Central Banks than people naturally suspicious of banks?

Posted by iang at July 1, 2013 04:18 AM | TrackBack

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens

Now a respected (if controversial) American economic commentator, Hudson said his time at Chase—during which, incidentally, he fired a "nasty little twit" called Alan Greenspan 1 —taught him most of what he ever learned about international economics.

... snip ...

couldn't resist ... also has lengthy section on City of London ... lots of its peculiarities including being one of the oldest and largest tax havens and money laundering centers. pg71/loc1477-79:

The City’s nine thousand–odd human residents have one vote each in municipal elections here. But businesses in the City vote too, as if they were human, with thirty-two thousand corporate votes. 25 In effect, Goldman Sachs, the Bank of China, Moscow Narodny Bank, and KPMG can vote in a hugely important British election.

... snip ...

for those that had thoughts about the US supreme court ruling about corporations are human.

Posted by: Lynn Wheeler at July 1, 2013 08:04 AM

older history, no. 2 on list of those responsible for the financial mess last decade (repeal of Glass-Steagall and blocking derivatives from being regulated)

Gramm and the 'Enron Loophole'

Enron was a major contributor to Mr. Gramm's political campaigns, and Mr. Gramm's wife, Wendy, served on the Enron board, which she joined after stepping down as chairwoman of the Commodity Futures Trading Commission.

... snip ...

and an older article: Phil Gramm's Enron Favor

A few days after she got the ball rolling on the exemption, Wendy Gramm resigned from the commission. Enron soon appointed her to its board of directors, where she served on the audit committee, which oversees the inner financial workings of the corporation. For this, the company paid her between $915,000 and $1.85 million in stocks and dividends, as much as $50,000 in annual salary, and $176,000 in
attendance fees,

... snip ...

and #3 responsible,


Greenspan Slept as Off-Books Debt Escaped Scrutiny

That same year Greenspan, Treasury Secretary Robert Rubin and SEC Chairman Arthur Levitt opposed an attempt by Brooksley Born, head of the Commodity Futures Trading Commission, to study regulating over-the-counter derivatives. In 2000, Congress passed a law keeping them unregulated.

... snip ...

Brooksley was fairly quickly replaced by Wendy Gramm as head of Commodity Futures Trading Commission, before Wendy then resigned to join Enron's board.

Now after Gramm leaves congress ... also from "Treasure Islands" pg140/loc2907-9:

In February 2003 Phil Gramm, a former Republican Texan senator who became vice chairman of the Swiss investment bank UBS Warburg, wrote to U.S. treasury secretary John Snow, arguing against a plan to increase international financial transparency.

... snip ...

and long detailed discussion of the BCCI incident, heavy involvement of Bank of England and numerous insiders in both London and Washington, pg136/2815-16:

The full Price Waterhouse report on BCCI remains confidential today, on the grounds that this will disturb Britain’s "international partners." It is a clear defense of tax haven London.

... snip ...

Posted by: Lynn Wheeler at July 1, 2013 01:23 PM

Thanks very much for replying, and letting me know. This does help me understand a bit. I guess my real critique of Greenspan is that, while he was skeptical of his *own* institution, he wasn't skeptical enough of the private-sector banks themselves; particularly, he did not understand the degree to which fraud is pervasive throughout the ecosystem.

Upon re-reading some of his statements, in principle, I agree with much of what he has to say; he just had a view of the consequences of those principles that was almost entirely divorced from the reality of the context that he existed in. Recently he has said several times, in various different ways, that he believes the state should more aggressively pursue fraud, but it's too little too late. If bankers and industrialists were really the objectivist paragons of enlightened long-term self-interest that he seemed to treat them as, almost everything he did would have made sense (and, I'd argue, be beneficial).

Posted by: Glyph at July 6, 2013 04:47 AM
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