Humpty Dumpty Sat on the Wall...

When Alan Greenspan was younger, he was devoted to the bellicose individualist Ayn Rand and hung out in her brainy circle. In those days, he wrote his own fierce essays in defense of free-market capitalism, and he still espouses contempt for government interference with the economy. "The welfare state," he wrote in 1966, "is nothing more than a mechanism by which government confiscates the wealth of the productive members of society to support a variety of welfare schemes." This sounds laughable today because Greenspan presides over one of those schemes himself: Only the Fed takes money from us productive citizens and dispenses it to troubled banks or financial firms that have fallen on hard times. Meanwhile, the chairman uses his influential status to urge on the politicians whacking away at the tattered old welfare state.

In his view, it is necessary to save the bankers from their mistakes, but it would be wrong to help people with theirs. Greenspan's distinctions are so precious, one suspects they are grounded not only in conservative ideology but in his interest-group loyalties. The chairman expressed no public embarassment (indeed, he never told the public) when he engineered the discreet bailout of Citibank and other major banks threatened by default in the early nineties. Or when the huge financial rescue was required for Mexico in 1995 so that Wall Street investment houses could get their millions out without huge losses. Or when Southeast Asia melted down a couple of years later and required even larger assistance. Or when the wonder firm of Long Term Capital Management--managed by his old friend and former Fed vice chairman David Mullins--went bust.

Greenspan is a player, after all, who has long operated at the intersections of business, finance and politics. He is the same shrewd analyst who, as a private consultant in 1985, gave federal regulators his prestigious endorsement of Charles Keating's notorious Lincoln Savings and Loan--just before it went belly up and dumped huge losses on US taxpayers. As Fed chairman, Greenspan actually set out to lend $100 million to rescue his former client, but he thought better of it when he saw the rising public wrath about the S&L bailouts. Ayn Rand might have winced for her protégé.

But meanwhile, in true Randian fashion, Greenspan has repeatedly weakened or stripped away the Fed's existing regulatory powers so as to liberate financiers and bankers. Commercial banks are more profitable today because Greenspan greatly reduced their obligations to deposit stabilizing reserves with the central bank. The financial deregulation he champions has led directly to the predatory, usurious lending practices that afflict the working poor. He single-handedly repealed the Glass-Steagall Act before Congress got around to doing it, by opening a dubious loophole permitting the creation of Citigroup and other financial conglomerates (mastodons the Fed may well have to rescue if the worst occurs). The point is, financial deregulation and Greenspan's laissez-faire enforcement have created the time bombs that may explode; if they do, he will run to the rescue, in the name of the soundness of the system.

Despite the stock market bubble, Greenspan refused to raise the margin requirement on lending and, in fact, tried to repeal this regulatory lever enacted after the 1929 crash. Woodward informs us that the chairman's current tight money is actually a belated attempt "to defuse the bubble" slowly --"a kind of soft landing for the stock market." But that's not what Greenspan tells the public. "We do not and have not been targeting the stock market," he has insisted. One of them is not telling the truth (I pick Humpty).

Truth does still matter in a democracy. In Maestro, Chairman Greenspan repeatedly boasts about achieving "balance" and "stability," but the truth is quite different in the real world. His tenure has led the US economy and society deeper into a condition of profound imbalance, one that now threatens bloody instability that would batter the "losers" once again. To restore a genuinely balanced prosperity will require new politics and great reforms, including overhaul of the Federal Reserve. In a perfect world, banking and the financial systems would be reregulated along different lines. The Fed would at last be subjected to concrete political accountability--either by making it a subdivision of the Treasury Department or by establishing a process of regular Congressional directives that force it to restore a more rational and equitable monetary policy. Ideally, politics would pursue all these and other propositions, but reform is obviously a long way off. In the meantime, I would settle for a genuinely honest public debate, because I do not think the central bank could stand it.

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