Greenspan’s Delusions

Greenspan’s Delusions

The former Fed chief makes his case: everyone, and no one, is to blame for the financial crisis.


By now, it hardly counts as news when a prominent member of America’s ruling class refuses to take responsibility for the havoc and misery his actions have wrought. In post-crisis America, dissembling and baroque exculpatory alternative histories have become a kind of patois among the best and brightest.

But even by this degraded standard, Alan Greenspan’s recent performance before the Financial Crisis Inquiry Commission (FCIC) stands out. The crisis has not been kind to Greenspan’s reputation. Yet despite overseeing a Fed that helped inflate the housing bubble and failed to use its regulatory authority to curtail fraud and predatory practices, Greenspan is still a member of high finance’s club. When Goldman Sachs wants a big name to wow the attendees at a conference, it calls in the erstwhile Oracle. The über-Establishment Brookings Institution published a forty-eight-page paper by Greenspan on the origins of the crisis that reads like a brief for the defense.

Greenspan’s excuse for his malfeasance has more or less been: nobody could have predicted it. "The Federal Reserve had as good an economic organization as exists," he told the House Committee on Oversight and Government Reform in October 2008. "If all those extraordinarily capable people were unable to foresee the development of this critical problem…we have to ask ourselves, Why is that? And the answer is that we’re not smart enough as people. We just cannot see events that far in advance."

The obvious problem with this account is that, well, there were lots of people who predicted exactly what would happen. Michael Lewis just wrote an entire book about a handful of investors who made a fortune betting on a housing market meltdown. The Nation‘s own William Greider and Dean Baker spent nearly the entire decade warning of the dangers of the massively inflating housing bubble. Former Commodity Futures Trading Commission chair and current FCIC member Brooksley Born famously warned of the dangers of unregulated credit default swaps, only to be shot down by, among others… Alan Greenspan. And in 2004 Chris Swecker, then the assistant director of the FBI, warned that mortgage fraud "has the potential to be an epidemic."

So Greenspan has changed his story. He now claims that he did, in fact, predict what was happening but that, predictions and foresight aside, there was really nothing he could have done. The crisis was the inevitable result of trends in global finance that stretch back at least to the fall of the Berlin Wall. "Is it fair to say that the origin of the crisis was the demand for subprime loans?" asked FCIC vice chair Bill Thomas, looking, it appeared, for an easy yes. Like an arsonist pinning the blame on Prometheus, Greenspan refused to give it to him: "The cause actually goes back to the cold war."

The list of the blameworthy in the chairman’s world is long and eclectic: Fannie and Freddie, European investors, members of both houses of Congress, average borrowers and on and on. Of course, if everyone is to blame, then no one is to blame–this is the heart of Greenspan’s case. In his telling, the financial crisis resembles a thunderbolt from above, an earthquake or a hurricane. An act of God.

During the premiere of Treme, David Simon’s new HBO series about life in New Orleans three months after Hurricane Katrina, a dyspeptic English professor, played by John Goodman, lays into a journalist who has the gall to suggest that Katrina was a natural disaster. "This is not a ‘natural disaster,’" he roars. "This is a man-made fucking catastrophe of epic proportions!"

As a matter of historical record and shared social witness, we all know this because we saw it. Whatever the weather, it was the man-made levees that failed, and the government, run by people, that failed to deliver the city’s citizens from their watery graves.

Because there aren’t the same real-time images in the case of the financial crisis, our elites seem to think they can get away with arguing that the failure was inevitable. In fact, they go so far as to marshal their own failure as evidence. "The forecast of regulators," Greenspan said, "have had a woeful record of chronic failure. Regulators cannot successfully use the bully pulpit…. Nor can regulators possibly eliminate the possibility of future crises." Quite a statement, considering he was the regulator.

Unfortunately, in the wake of the epic list of fuckups this past decade, the notion that we’re helpless to make things better seems a plausible and seductive doctrine. One need only take a cursory look across the globe or back through history, however, to see that this simply isn’t so. We really can do better. New Orleans may sit under sea level, but so does much of the Netherlands, and that country has developed the most sophisticated system of levees in the world, marvels of engineering that can withstand surges much more powerful than those that defeated the levees in the Gulf of Mexico. Canada has a robust and open economy, but also a regulatory regime wise, prudent and powerful enough to curtail abuses, which has managed to spare the country almost entirely from the ravages of the latest crisis. Here at home, brutal cycles of boom and bust were endemic for much of the country’s history until New Deal regulation laid the foundation for a period of financial stability.

It’s a blindingly obvious point, but after listening to Greenspan’s phlegmatic spinning, it’s crucially important to restate: as fallible as we are, as disordered as our society may be, as blinkered and epistemically constrained as regulators might be, we have throughout history consistently found better and better ways to coordinate human activity and curtail disasters, whether they be precipitated by oceans or bankers. If Greenspan couldn’t figure things out, that doesn’t mean others can’t. In fact, developing systems for doing just that is called– quite simply–progress, and Alan Greenspan continues to be one of its enemies.

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