In Part 1 of my review of Griftopia: Bubble Machines, Vampire Squids and the Long Con that is Destroying America, I focused on Matt Taibbi’s central thesis:
Our world isn’t about ideology anymore. It’s about complexity. We live in a complex bureaucratic state with complex laws and complex business practices, and the few organizations with the corporate will power to master these complexities will inevitably own the political power.
As far as the Masters of the Universe are concerned, the majority of Americans are expendable now. While state and local governments stare at bankruptcy, while millions can’t find work, Wall Street, the banksters, and the mega-corps are all doing just fine. The super rich continue to get tax welfare while everyone else is told sacrifice is the order of the day.
Welcome to Griftopia, Part 2
The mantra of smaller government, cutting taxes, cutting spending, cutting regulation as the answer to all of America's problems is a fantasy with no connection to the reality we're now saddled with. Worshippers of The Invisible Hand myth who are shooting themselves in the foot so to speak really don't understand how the world now rolls. The "Big Government" that's the nightmare of Tea Party works just fine for the priveleged few mentioned above. The bipartisan symbiosis between big money and the government that used to be ours has become a very effective wealth transfer machine - and there's no sign it's going to stop until all of the wealth in this country has been strip mined down to bedrock for the top 1%.
Cool, huh? Not particularly unless you're one of the oligarchs.
This part of the review is going to take a tour of one particular spot in the Grifter Archipelago, the name Taibbi gives to those complexities that now rule our existence. As he says, while it's not easy to unravel, understanding it is vital if we are ever going to be able to find our way out. As before, reading the book is recommended - Taibbi gets into much more detail and does a great job making it understandable.
Chapter 2: The Biggest Asshole in the Universe
If there’s one villain that Taibbi singles out for special notoriety it’s Alan Greenspan. (The title above is taken directly from the book.) For decades it’s been almost impossible to find any economic policy, any critical regulatory decision, any bubble and collapse where Greenspan hasn’t been at Ground Zero just about every single time.
A key to understanding Griftopia is the role of the Federal Reserve - and Greenspan’s role in turning it into "a permanent bailout mechanism for the super-rich." The economic shocks of the 80s, 90s, and early 2000s are when political power shifted from elected government to private and semi-private institutions run by oligarchs out to benefit their own class - and Greenspan as first an economic advisor to the powerful and then Chairman of the Fed was there every step of the way doing his best to facilitate the power shift.
The Fed plays a critical role in the economy. While it has many duties, the principle one is to try to manage the amount of money 'out there'. It can let banks 'create’ money by loosening how much they have to have on hand to back up the loans they make - cutting that margin lets banks act as though they magically have more. The Fed can lend money to banks directly at relatively low rates - which they can then turn around and lend out at a higher rate. (The discount window.) The Fed can buy up Treasury Bills or bonds from banks and brokers, pumping even more money into the economy.
The rationale for something like the Federal Reserve is to smooth out the fluctuations in the economy, the classic boom and bust cycle that’s proven so destructive to long-term financial stability and growth over the years. The Fed is supposed to cool things down when the market overheats, and goose it when it slows, while trying to factor in unemployment, inflation, long term debt, etc. etc. to find a balance where the greatest number is doing well. Or, it can tip that balance in other directions...
The Federal Reserve operates with a great deal of independence and even mystery because decisions by the Fed can have a massive effect; mere rumors of Fed action can send stocks soaring or crashing. Although Congress is supposed to have oversight, in practice the Federal Reserve answers to no one - because of that power as much as anything. (And also because no politician wants to risk being blamed for a market crash by poking the Fed too hard in public.)
Chairmanship of the Federal Reserve is therefore one of the most critical unelected positions in government. The ideal chairman should have the highest level of competence, a deep understanding of the economy, the integrity to resist political pressures of the moment for the long view, and the intelligence to cope with complex issues in which the Fed is one of many actors - if a major one. Instead we got Alan Greenspan.
WARNING: You may want to have brain-bleach handy after reading Taibbi’s characterization of Greenspan.
Greenspan's rise is instead a tale of a gerbilish mirror-gazer who flattered and bullshitted his way up the Matterhorn of American power and then, once he got to the top, feverishly jacked himself off to the attentions of Wall Street for twenty consecutive years - in the process laying the intellectual foundation for a generation of orgiastic greed and overconsumption and turning the Federal Reserve into a permanent bailout mechanism for the super-rich.
Playing games with interest rates is primarily how the Fed under Greenspan manipulated the money supply. This affects things like savings and investment - depending on where rates are, people make decisions about the best places to put their money for the biggest return. Hike the rate at which the Fed loans money to banks (the federal funds rate) and everyone ends up paying more to borrow - plus getting higher rates on savings. The economy slows down.
Lower the rate, money is 'cheaper’ - and the economy picks up. Instead of being saved, money goes into the stock market seeking a higher rate of return. Pump in enough cheap money, and the market inflates into a bubble where the actual value of what’s being traded, and the bets made on how those trades will work out becomes less and less of a concern. Instead, people are making money just from money moving around - until the bubble bursts...
Under Greenspan, the Fed operated like a casino that kept extending credit to the big gamblers - and stuck everyone else with the tab when their bets ultimately failed to pay off.
Without going into a lot of detail (which Taibbi does), Greenspan’s career was spent serving the super rich at the expense of everyone else. He helped Ronald Reagan pull off the Social Security bait & switch 'rescue’ that laid the groundwork for the current assault. He pursued inflation-fighting policies that - among other things - deliberately worked to hold down or cut wages and benefits for the working/middle class. He routinely misinterpreted what was happening with the economy leading to repeated economic fiascos, and was instrumental in fueling the dot-com and housing bubbles. The markets came to believe that it didn’t matter how risky their behavior was - Greenspan would show up to bail them out. Which he did. Repeatedly.
At the same time he continually pushed or signed off on policies that deregulated the financial sector. He helped tear down the wall between insurance companies, investment firms, and commercial banks. (Glass-Steagall repeal), and turned the Commodities market (with Bob Rubin) into a free for all. He helped engineer the creation of ever larger banks via mergers, etc. setting up Too Big To Fail. He failed to address the Shadow Banking System that rose up on his watch, leaving it unregulated.
What seems an obvious warning sign in hindsight is something Taibbi spends a far amount of Chapter 2 on - Greenspan’s long history as an inner circle acolyte of Ayn Rand and her cult philosophy. The man at the center of the Federal Government’s Central Bank, the supposed anchor of a stable economy, believed government regulation was unnecessary - because markets are inherently self-regulating! Further, the vast majority of Americans are parasites, not 'producers’ in Randian terms - and Greenspan valued them accordingly.
Even now, Greenspan hasn’t quite grasped that the Masters of the Universe who style themselves as true incarnations of John Galt are anything but. Whiny, egomanaiacal, stupid greedy bastards is more like it - but they still see themselves as the real drivers of the economy, with a Randian world view to match.
Taibbi reduces Rand’s belief system to these four points:
- Facts are facts: things can be absolutely right or absolutely wrong, as determined by reason.
- According to my reasoning, I am absolutely right.
- Charity is immoral.
- Pay for your own fucking schools.
Or even more succinctly:
"When I’m right, I’m right." and "My facts are facts and your facts are not facts."
It’s worth remembering - as Digby noted - that Greenspan loved Atlas Shrugged.
‘Atlas Shrugged’ is a celebration of life and happiness. Justice is unrelenting. Creative individuals and undeviating purpose and rationality achieve joy and fulfillment. Parasites who persistently avoid either purpose or reason perish as they should.
It’s worth remembering that the climax of the book occurs when the heroes retreat to their secret hideout while the lights of New York City go out and the country collapses. Only when millions have died in violence, starved or otherwise descended into anarchy and chaos do they feel they can return to the world - now that everyone who was holding them back has gotten out of their way.
Gawd help us, they give copies of this book away to MOTU wannabes! Hat tip to Paul Krugman for reminding me of the ultimate analysis of Atlas Shrugged at Kung Fu Monkey.
-- There are two novels that can change a bookish fourteen-year old's life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.
Atlas Shrugged is the ultimate Disaster Capitalist wet dream. It makes it easier to understand the roots of the current antipathy to extending jobless benefits, the obsession with preserving tax welfare for the rich, and the growing assignment of blame for unemployment on the unemployed - coming from the John Galt wannabes of the Fortune 500 Greenspan spent his career sucking up to.
And that’s why understanding Greenspan’s role is important to understanding Griftopia. There’s no question Taibbi has picked him out as a key enabler of the rise of Griftopia. It makes for a compelling narrative, and it couldn’t have arisen as thoroughly and completely as it has without the corruption of the Central Bank under Greenspan. But I might venture to suggest readers should put Greenspan in a larger context.
To quote from a recent Terry Pratchett novel, “Poison goes where poison’s welcome.” The ideas and policies Greenspan pushed do not exist in a vacuum; both Democratic and Republican politicians were happy enough to have him working for them. (Some of the more outrageous events happened on Bill Clinton’s watch for example.) The embrace of Big Money by Democratic politicians in exchange for contributions to match the GOP funding base, the inclusion of Wall Street players in administration after administration, the revolving door between DC and Wall Street, the veto power over economic and regulatory policy Wall Street exerts....
Greenspan may have surfed that wave, but it was already a rising tide. His record was always available for review; a press corps interested in real journalism could have deflated his charade of economic expertise at any time they chose. Real Congressional oversight of the Fed after the first Greenspan bubble collapse might have headed off the next. (Taibbi notes that Greenspan’s confirmation hearing for Fed chairmanship raised some points - but failed to connect the dots.) All that and more is an indictment of our political system as much as it is of Greenspan.
We now have a generation of financiers who regard Greenspan style solicitude for their welfare as nothing more than their just due. We have politicians of both sides who still regard Greenspan’s tenure as the standard for the role of the Fed. The press still treats him with respect and seeks his opinion from time to time. (Not that Greenspan has ever been shy about giving it.) The expectation from the DC Villagers and the Lamestream Media is that Wall Street and the Business Community should still have primary say in setting our economic course as a nation.
And all of this is still largely unrealized by Main Street as they look for answers to why things suck big time for so many. But that’s Griftopia for you.
The next installment of this review is going to tackle more of the elements in the archipelago: the mortgage scam, the commodities bubble, outsourced infrastructure, the trillion dollar bandaid, and the Great American Bubble Machine. Those of you who got Griftopia for the holidays, feel free to chime in. And for those who haven’t yet, what are you waiting for?