Thursday, February 19, 2009

Free market high priest backs bank takeover

Alan Greenspan -- the former longtime chairman of the Federal Reserve Bank and a staunch free-market, laissez-faire capitalist -- has said publicly that the US may need to nationalize parts of the banking system to turn around the current economic crisis. This is like the Red Sox walking over to the Yankees' dugout during a baseball game and asking to use their opponents' bats because they are superior.

Greenspan, one of the architects of US fiscal policy during his nearly two decade reign as Fed chair, has been cited by Nobel Prize-winning economist and New York Times columnist Paul Krugman as the individual most responsible for the current economic crisis. A couple of months ago Greenspan sat before a Congressional committee and admitted that he was wrong in assuming that banks and other financial institutions would regulate themselves.

There seems to be a general feeling building that nationalization is inevitable and that what has prevented it from happening so far is public opinion. The price tag is likely to be more than a trillion dollars. Do such numbers even matter any more? Has the value of the dollar become meaningless? Will the situation become as bad as the Great Depression? Is all of this an admission that the basic tenets of capitalism are all wrong?

Speaking of the economy, I watched "Inside the Meltdown" on PBS's Frontline a couple days ago, and the program detailed how the economic crisis unfolded and how Ben Bernanke, current Fed chair, and Hank Paulson, former Tresury secretary, walked into a meeting with Congressional leaders and showed them that the entire US economy was standing on a cliff.

And in a recent issue of The New Yorker there is an article called "The Ponzi State," which details the collapse of Florida's housing market in an economy that is based almost completely on outsiders moving in. In effect, says writer George Packer, the Sunshine State is one giant Ponzi scheme. Could this be true of the nation's -- nay, the world's -- economy?


Anonymous said...

It is very interesting though not surprising, that left wing extremist like you doubt the capitalism. Instead of just looking at today's narrow picture, why don't you take a look at past 20 years of prosperity we have had. It is easy to point fingers, and cite a left wing journalist from New York Times. He received the noble price for a work done 25 years ago that has nothing to do with today crisis and has been consistently wrong since. Trying to portray deregulation as the source of today crisis is wrong and immoral. That means that you are using the situation to promote your liberal agenda. I have to remind you that deregulation took place many years ago, including Clinton's years, and worked fine for our economy. I would argue that in fact regulations, as the ones that contributed in creation of Freddie Mac and Fani May are the real problem. We all know that it all started with the Housing Bubble. The above mentioned played a crucial role by offering loans to people that wouldn't get one. This was part of liberal agenda. Shame on you for blaming Greenspan. He might have made many mistakes but at least has the integrity to admit them.

Jimbo said...

Yes, I do "doubt the capitalism." It's a system that has created huge gaps between rich and poor, has corrupted politics, destroyed the environment, and already crippled the nation's economy once -- you may have heard of the Great Depression -- and is in the midst of doing it again.

Since Ronald Reagan became president, wages -- adjusted for inflation -- have remained stagnant for most Americans. Between tax cuts for the wealthy and deregulation, the rich have gorged themselves. The working folks who have tried to buy all of the things that capitalism insists we all need have gone deep into debt.

Look what capitalism has done to health care. We allowed it to become a business and now the prices are astronomical and threatening to crush businesses under the weight of health care costs. Meanwhile, our infant-mortality rate is like that of a Third World country.

And look what capitalism has done to the armed forces. The military-industrial complex that the lefty Eisenhower warned us about keeps us at war all the time because giant corporations make billions off of government contracts.

Open your eyes, think for yourself, and reach your own conclusions. The truth is all around you.

N.starluna said...

I do an exercise in my undergraduate research course where the students are tasked to deconstruct the argument. They have to identify the premises and assumptions and evaluate them. Usually I spend hours looking for a recent editorial, letter to the editor, or blog entry that allows the students to identify at least three different problematic or questionable claims. Anonymous' statement makes oodles of them (yes that is a scientific term). I am now going to use Anonymous' statement here as the example for the students to work on. This should be good for at least 2 or 3 years. Thank you for making my job easier.

Jimbo said...

Happy to be of service!

Anonymous said...

I don't know anonymous (obviously) but unless s/he is a multi-millionaire, the saddest thing is that s/he and millions of other conservatives continue to believe these things while conservative values and capitalism has made their lives worse and worse. There only a few people in the world that capitalism really works for.

I won't go into all the inconsistencies in anonymous's argument (I'll leave that to N.starluna's students), but I do have to comment on two:

1. Admitting your mistakes does not mean you shouldn't take blame for your mistakes! Why should Jimbo be "shamed" for simply agreeing with Greenspan himself? Yes, it is nice that after the world has collapsed (in part thanks to Greenspan's vision), he can finally admit some mistakes (opps!). That doesn't mean that people can't criticize those failed policies because Greenspan finally admits he was wrong.

2. I don't know who was the first to blame Freddy and Fannie (Limbaugh? O'Reilly, Hannity?), but I am sick of people blindly repeating such a stupid claim. IT IS NOT the fault of these companies and some poor people who haven't been able to keep up with their mortgages. The housing bubble was certainly not created by Freddy and Fannie. OTHER BANKS (yes, capitalists) are the ones who made most of the bad loans. Hedge fund folks, etc. (who WERE NOT REGULATED) are the ones who destroyed the market with their riduculous credit swaps, etc. Greedy immoral people like Madoff are the ones who destroyed lives. This is not the fault of poor people. C'mon, think for a minute!

Anonymous said...

Jimbo, instead of lecturing me with poltical dogma bring forward some facts that pertain to the case. It is obvious that Crugman and Keynes are not my favorite economist. Smith and Friedman are. To imply that I am being indoctrinated it is unfair and unbased. Facts 1) 1992 Housing Bill set quotas for Fannie and Freddie in order to meet the housing needs of low-and moderate- income Americans. In 1995 HUD raised the primary quota for low-and moderate income housing loans froam 30% set by Congress in 1992 to 40%. and to 42% in 1997. By the time the housing market collapsed, Fannie and freddie faced 3 quotas. The first for individual with below-average income ,56% of their mortgages. The second for families with incomes at or 60% of area median income, 27% of their holdings. The third targeted the underserved areas.As result from a share of only 4,5% of total mortgage market in 1994, subrime mortgages went up to 20,1 % of the market in 2006. Fact 2) The Financial Services Modernization Act of 1999, which deregulated the financial system, was signed by Bill Clinton. The law repealed part of Great Depression era Glass-Steagall act, allowing the the banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. Fact 3) Federal Reserve is responsible only for the monetary policy(e.i. supply of money) not the fiscal one. I can go on forever but before acusing me for inconsistency, how about you people bring some facts forward. It sounds very naive that you try to make the case as to how bad capitalism is, by using as evidence the most powerfull and rich country that ever exsisted.

N.starluna, trying to take the side of a friend in an argument is an honorable thing. However, you should stick to what you understand.

Anonymous, if you are sick and tired maybe you should watch Keith Oberman and relax. Sometimes it is helpful to listen to the other side though.

N.starluna said...

Aah, the ad hominem attack. A classic fallacy. I always felt the ad hominem attack lacked the sophistication of the straw man argument and elegance of Post hoc, ergo propter hoc. Nonetheless, a staple of stand-up comedians and playground bullying.

Well, I best be getting back to preparing this week's class discussion on urban economic development and the role of federal housing policy in mid to late 20th century suburbanization patterns.

Anonymous said...


I am not as smart as the economists who choose the Nobel Prize. I am not even an expert on Paul Krugman. But I am willing to consider that Krugman would not win the Nobel Prize for a work that old unless it was somehow applicable to today's situation. That would make him even more deserving I would think...since your claim that he is wrong and that all the Nobel judges were wrong, I would love to know if you read his book and what your point by point criticism is (yours, not Limbaugh's or Hannity's). I am serious about that...I have learned a few things from smart conservative friends over the years.

I don't watch Keith Olbermann, except for a couple of snippets that led me to believe that he is way over the top, smug and annoying (although probably usually right). I listen to the "other side" as you term it, a lot. That is why I know they use the same old, inaccurate statements over and over again. The sad thing about it, as I mentioned in my earlier post, is that these commentators are all quite wealthy--capitalism works great for them. Unfortunately many people continue to believe their sneaky, self-serving inaccuracies, allowing themselves and others who don't agree to be screwed over and over again.