Idealism Takes a Hit
Gene Lyons ~ October 29, 2008
Ever since the infamous Sixties, Republicans have portrayed themselves as hard-headed realists and Democrats as sentimental idealists; the Daddy party vs. the Mommy party, all that. Never mind that their idea of a manly avatar is George W. Bush. Conservative pundits, talk radio personalities, rightwing bloggers and faculty lounge lizards alike seemingly get a testosterone boost out of contrasting their tough-minded worldliness to feckless liberal schemes for the salvation of mankind. Today’s reality is almost precisely the opposite. Contemporary Republicanism has sacrificed the reasoned self-interest of the American people to abstract ideology at every turn. It’s bitterly amusing watching GOP culture heroes forced to confront their failures as the party’s day of reckoning approaches.
Last week’s ritual humiliation of former Federal Reserve chairman and free market guru Alan Greenspan by a committee of grandstanding congressmen would be sad if not so richly deserved. A free-market zealot as deluded as the woolliest Marxist English professor, Greenspan professed himself horrified by the gigantic Ponzi scheme constructed by Wall Street mortgage lenders and investment banks. Poor fellow, he’d evidently never paused to consider why banks need armed guards.
First appointed by (who else ?) Ronald Reagan, Greenspan admitted putting too much faith in the theoretical ability of free markets to magically regulate themselves.
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he confessed. Evidently, the oracle persuaded himself that bankers wearing $ 2, 000 suits and $ 500 shoes were too high-minded to steal.
Democrats reminded Greenspan that he’d had the legal authority to prevent irresponsible lending practices but refused to use it, despite increasingly dire warnings from economists outside the government of an unsustainable speculative housing bubble. Perennially indignant Rep. Henry Waxman, D-Calif., put it to him directly: “Do you feel that your ideology pushed you to make decisions that you wish you had not made ?”
“Yes, I’ve found a flaw,” Greenspan conceded. “I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”
Yes, it’s called human nature. Leave the vault open and chances are the cash won’t be there in the morning. A youthful devotee of the very bad novelist Ayn Rand, whose philosophy of objectivism holds that unlimited greed produces unlimited good, for all his intellect Greenspan is as credulous as a child. It’s a good thing he travels mainly by limousine because the poor fellow would be helpless in the hands of a cunning used-car dealer.
“For a man who was once remarkably hard to decipher,” commented Steve Goldstein of marketwatch. com, Greenspan “is now as clear as an empty Lehman Brothers office.”
Greenspan actually believed that Wall Street investment bankers paid multimillion-dollar performance bonuses on the basis of short-term paper profits would restrain themselves from turning the nation’s financial system into a gigantic rigged roulette wheel for the shareholders’ sake. Even so, he retained enough self-respect not to play along with the GOP’s latest poisonous alibi—that the entire sub-prime mortgage debacle was somehow the fault of laws enacted under Jimmy Carter and Bill Clinton forcing banks to make bad loans to poor blacks and Hispanics, who defaulted and took Wall Street down with them.
That this destructive fable violates simple common sense—hundreds of billions lost on ghetto real estate?—hasn’t prevented it from deluding Republican true believers, who somehow failed to register the fact that the GOP controlled the White House, Senate and House between 2002 and 2006 when the great majority of the damage was done.
Rather than act, Greenspan and his successors pooh-poohed warnings that a speculative bubble was inflating, slashed interest rates to near-record lows and did nothing to restrain investment in mortgage-based securities whose underlying worthlessness was concealed from buyers in an elaborate game of financial musical chairs.
And guess what. According to Newsweek business columnist Daniel Gross, it turns out that while minority homeowners actually have very good records of paying off mortgages, “lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Bros. or Jimmy Cayne of Bear Stearns, can be really risky.”
Nobody forced these jokers to lend out upward of $ 33 for every dollar kept in reserve, an absurdly dangerous strategy. They did it because they were making out like bandits on fees and commissions. With luck, their multimillion-dollar bonuses would be safely ensconced in T-bills when the music stopped.
Invited by GOP congressmen to blame government-sponsored mortgage giants Fannie Mae and Freddie Mac for the debacle, Greenspan demurred, saying in prepared testimony, “The evidence strongly suggests that without the excess demand from securitizers, sub-prime mortgage originations (undeniably the original source of the crisis ) would have been far smaller and defaults accordingly far lower.” Greenspan looked like a fool, but he did salvage his honor.