Saturday, September 15, 2007

Alan Greenspin Finally Writes His CYA Memoir

Alan Greenspan was, for a time, one of the more favorably looked-upon Chairmen of the Federal Reserve, an organization only seen as through a glass, darkly. We humans have an imperfect perception of reality and a tendency to make our own when it suits us, particularly at the end of long and contentious lives.


Greenspan1842 Alan Greenspan was, for a time, one of the more favorably looked-upon Chairmen of the Federal Reserve, an organization only seen as through a glass, darkly. We humans have an imperfect perception of reality and a tendency to make our own when it suits us, particularly at the end of long and contentious lives.

Presiding over the aftermath of a dot-com bubble he failed to recognize, he retired just before the housing bubble burst, thus avoiding bubble-gum all over his face and yet another blemish to the old career happening on his watch. Not everyone saw the dot-com mess. On the other hand, everyone saw the housing bubble and the greed of a sub-prime feeding frenzy but Alan, who essentially initiated it for reasons known only to him.

Bobwoodward Bob Woodward, an apologist as well when it suits him, writes in today’s Washington Post,

Alan Greenspan, who served as Federal Reserve chairman for 18 years and was the leading Republican economist for the past three decades, levels unusually harsh criticism at President Bush and the Republican Party in his new book, arguing that Bush abandoned the central conservative principle of fiscal restraint.

Yet it was Greenspan who cheer-led the unconscionable Bush tax giveaway to the super-rich, achieved in the same time-frame that the administration was engineering an unfunded war in Afghanistan and Iraq. I guess I need some help in determining just who it was who abandoned restraint and that's certainly not going to be Woodward.

Mortgage2 Lowering the discount rate to an unprecedented 1% and knowing that would set up a mortgage refinance tsunami, Alan testified to Congress,

“Besides sustaining the demand for new construction, mortgage markets have also been a powerful stabilizing force over the past two years of economic distress by facilitating the extraction of some of the equity that homeowners have built up over the years."

That ‘extraction’ has worked to destroy families, wreck retirements, suck dry the single largest economic pool supporting most American homeowners, leverage an already overheated personal debt ratio and cause the greatest percentage of foreclosures since the Great Depression. Alan singlehandedly transferred economic distress from businesses to individuals.

In April, 2005 the great man pontificated,

"Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country … With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. … Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.”

Mortgage Credit-scoring models such as filling in your own mythical annual salary without additional substantiation. Judging the risk by not asking how much debt is already owed by the mortgage applicant. With advantages in technology like lender-abetted lies and subterfuge, banks hired ‘loan specialists’ who were paid by commission like used car salesmen.

Everybody in Greenspan's co-conspiracy made a buck on the ‘front end charges’ to these borrowers of last resort, then packaged their bad loans off to someone else, who repackaged them again to specialty hedge funds.

A ten-fold increase in sub-prime mortgages, the new ‘vehicle’ to keep consumer spending rolling along during a war, even though consumers weren’t being asked to finance that war. They call it a vehicle, because it’s used to drive off with your money.

Greenspanmedalfreedom Twenty-three months after Alan’s ‘innovation,’ the mortgage market collapsed. By then, he had joined General Tommy Franks, George Tenet and L. Paul Bremer as a recipient of the Presidential Medal of Freedom, the George Bush consolation prize for failure.

Woodward again, with Greenspan’s praise for the impeached and scorn for the unimpeached,

While condemning Democrats, too, for rampant federal spending, he offers Bill Clinton an exemption. The former president emerges as the political hero of "The Age of Turbulence: Adventures in a New World," Greenspan's 531-page memoir, which is being published Monday.

Greenspan, who had an eight-year alliance with Clinton and Democratic Treasury secretaries in the 1990s, praises Clinton's mind and his tough anti-deficit policies, calling the former president's 1993 economic plan "an act of political courage."

But he expresses deep disappointment with Bush. "My biggest frustration remained the president's unwillingness to wield his veto against out-of-control spending," Greenspan writes. "Not exercising the veto power became a hallmark of the Bush presidency. . . . To my mind, Bush's collaborate-don't-confront approach was a major mistake."

Alan still doesn’t get it. Who was Bush supposed to confront, Dennis Hastert? Bill Frist? These were his own party’s guys and while they might have been co-conspirators, one can hardly proscribe a Republican president for failing to veto a Republican majority in Congress. That’s hardly a collaboration, at least not by my understanding of the word.

He argues that "deficits must matter" and that uncontrolled government spending and borrowing can produce high inflation "and economic devastation."

Money In a game of deficit-spending, borrowing, tax relief to the rich, unfunded wars Musical Chairs, Greenspan ends up without a seat and blames the president he served badly. Or the nation. He might as well blame America itself, because he served it badly as well. Failing to stand up when the power vested in your appointment gives you legs is reprehensible. Failing your country and then writing a book laying the blame at someone else’s door is worse. It borders treason.

He says, "Little value was placed on rigorous economic policy debate or the weighing of long-term consequences." The large, anticipated federal budget surpluses that were the basis for Bush's initial $1.35 trillion tax cut "were gone six to nine months after George W. Bush took office." So Bush's goals "were no longer entirely appropriate. He continued to pursue his presidential campaign promises nonetheless."

Even so, Greenspan continued to support him for five more years, then took his medal, took a powder and wrote a tell-all.

Several people could have made a difference in this ‘real slow walk in a real sad rain’ that was and is the Bush administration. Colin Powell was one. Powell had so much stature that, had he resigned and called out the neo-cons for what they were, the political landscape would be vastly different. Greenspan was another. A resignation and statement would have served his country instead of his personal interests.

Each was guilty of a failure of courage.

By the end of last year, Greenspan writes with some bitterness, Washington was "harboring a dysfunctional government. . . . Governance has become dangerously dysfunctional."

And, as Johnny Cash wrote, ‘nobody tried to be John Wayne.’

Drive On.

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