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   In the Waxman hearing on the finance debacle this morning, all three witnesses (Alan Greenspan, Christopher Cox and John Snow) essentially claim as their defense that, in spite of having the smartest people in government working for them, "nobody was talking to each other," therefore we cannot be held responsible for anything that has happened.   How convenient for their biography, but what a shame that there is no better answer.  After all, if these guys knew that their employees knew things that other employees didn’t know, that means they knew!  Did that account for nothing?  If they knew what was going on, why did they feel so powerless to put the pieces of the puzzle together on their own initiative and take action?   Why does it seem that they were looking in legislation for reason to not intervene instead of a reason to?  Did we hire these three supposedly very smart people because they were just blank slates waiting for someone to write on?

       The answer to this question resides in their shared philosophy of government.  What these men all share is a faith in the market’s ability to self-regulate and an aversion to the government taking preventative actions to head off problems.   Greenspan justified non-regulation by saying that forecasting was requisite to justify regulations and, being an inexact science capable of giving us right answers only 40% of the time, we should not regulate.   That is like arguing that building codes should not include termite barriers in building foundations because we cannot forecast which houses termites will decide to infest.
      Forecasting is not, nor has it ever been, a requisite to regulations.  That is bogus!   We don’t ask traffic engineers to forecast the number of automobile accidents at an intersection before we put up traffic lights!   This is as subterfuge to disguise their real reason: a blind and pervasive trust in laissez-faire economics.   The regulations on financial markets put on the books after the 1929 crash did not rest on forecasting.  They rested on the simple fact that at the heart of all crashes is the creation of financial instruments that because overvalued and sellers were undercapitalized and that only government regulations can prevent this from happening.   Based on that fundamental assumption, a regulatory regime was set up to bring transparency and accountability to the market so that buyer could know the value of what they were buying and sellers had to guarantee the value of what they sold.
      Was the GSC team just reading different tea leaves?  No.  Were the adjustable rate mortgages (ARM) the fault?  No.  When asked about the role of the Carter administration banking regulations to end red-lining, Greenspan finally spoke the truth with clarity.  He said that had those ARMs, or even those coming more recently, not been securitized – had they not be bundled and sold off like so many dead fish in a sealed basket - and in such volume, they would not have been a problem.   It was when these relatively risky mortgages got repackaged in mortgage-based securities (MBS) and sold all over the world as sound investment  (after all, didn’t Uncle Sam guarantee the quality of this sort of stuff?)  that a house of cards was created only waiting for the inevitable breeze to blow it down.  
    Compounding the instability were the credit default swaps (CDS) that served as guarantees of these already risky securities, and, in so doing, amplified rather than reduced risk buyers faced.   What we ultimately had, to our combined grief, was credit market capitalization dominated by one set of instruments (CDS) insuring the value of another set of instruments (MBS) whose value was dependent on the riskiest of home mortgages (ARM).  Then, when those higher mortgage note payments kicked in and homeowners could not pay them, everything came crashing down.
      What we must learn from this experience is that this house of cards was allowed to come into being, not because people did not know what was going on, not because government employees were too dim-witted to imagine a world in which rosy scenarios didn’t exist, not because they could not anticipate the worse-case scenario, and not because one hand was not talking to the other hand... but because of a philosophy of government, held by those in the highest levels of the Bush administration, that can legitimatize the government spending billions of the taxpayer’s dollars to clean up the market’s mess, justified because markets are fallible; but not a cent to prevent the mess, justified because markets must be allowed total freedom.  
      Wall Street, it seems, is the only street in America where it is insisted that drunks be allowed to drive and the victims billed for the accident!  If this sounds like insanity to you, it does to me, also.

               

 

Originally posted to Steve Love on Thu Oct 23, 2008 at 01:22 PM PDT.

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Comment Preferences

  •  I knew Alan Greenspan was a snakeoil peddlar (3+ / 0-)
    Recommended by:
    Silverbird, panicbean, Steve Love

    back in the 1980s, when he was a shill for the Recording Industry Association of America, and argued, as an "economics expert," that the record companies were owed profits on the sales they would have made if their damned customers didn't share music with their friends.

    Alan Greenspan is a carny-wheel hireling of the plutocrats - nothing more and nothing less.

    "I'm John McCain, and I approve this charade."

    by semiot on Thu Oct 23, 2008 at 01:46:48 PM PDT

  •  As one of our former presidents said, (0+ / 0-)

    (something along the lines of) there is nothing that accidentally happend in government.  They knew the economy was a disaster waiting to happen because thay had created that future with deregulation (i.e. removing the rules a/k/a financial anarchy) Our leaders wanted it that way.  Remember, we could hardly believe them when they said, "We want to make the government so small you could drown it in a bathtub."

    No rich people I know objected to that.

    ...do the elites...actually believe that society can be destroyed by anyone except those who lead them? - John Ralston Saul -

    by Silverbird on Thu Oct 23, 2008 at 02:04:28 PM PDT

    •  On how we just couldn't believe. (2+ / 0-)
      Recommended by:
      Silverbird, Halcyon

        Paul Krugman, in the introduction to his book, The Great Unraveling, points out that when revolutionary forces meet the non-revolutionary, that the latter comes out badly because they cannot believe that ANYONE would think or act in such a lawless fashion.  But lawlessness is of the essence of the revolutionary mind.  Once it is determined that the status quo is illegitimate, everything is up for grabs: every lie is legitimate and every campaign dirty trick permisible.  
        When Gingrich, Armey and DeLay...and Grover Norquist, the author of the "drowning government in the bathtub" comment called themselves revolutionaries we all thought they were just engaging in hyperbole.  Maybe NOW we know they weren't.  
        It's nice to know that Newt, Dick and Tom are out of government but Grover is still hosting his Wednesday luncheons where the anti-government seditionists still meet to plan their next assault on the Constitution.

      ...Former candidate for Congress.

      by Steve Love on Thu Oct 23, 2008 at 04:01:56 PM PDT

      [ Parent ]

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