“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief..." - Alan Greenspan
The only thing I see here is Greenspan's efforts to deflect blame from himself as the architect of the Fed's deadly easy-money policies perpetrated during his near-20-year reign as Chairman. Perhaps no single human being is as responsible for the financial chaos we see around us, nor for the very public execution of capitalism based on trumped-up charges.
Greenspan is a miserable traitor to the ideals that he trumpeted during his association with Ayn Rand. And anyone who knows anything about Objectivism should know that his actions over the last 30 years have been anything but consistent with the philosophy.
Mark: >Greenspan is a miserable traitor to the ideals that he trumpeted during his association with Ayn Rand.
This, like Brandon Byrd's article, misses the point. The issue is not "was Alan Greenspan a true Objectivist?" Everyone knows he wasn't. (And according to doctrine the only "true Objectivist" was Ayn Rand anyway!)The point is, did his underlying anti-intervention ideological stance, which was heavily influenced by Rand, make a major contribution to the current calamity which engulfs us? The answer is, in his own words above, yes.
Mr Barnes, You nailed it right on the head! Greenspan, in my humble opinion, was a fraud as Fed chief and still is. I recall independent senator Sanders grilling Greenspan regarding his myopia on economic reality Americans have been under. It was a classic!
"Let's hope we are all wealthy and retired by the time this house of cards falters" Employee of Standard and Poor's, a credit rating company.
I suppose the self-interest of lending institutions will never be able to protect us from the interference of the government. herbsewell, a commentator on Ayn Rand Contra Human Nature, a blog to discuss the philosophy of Ayn Rand.
"Lending Institutions" have no self-interest or self anything else. They are pieces of paper on file in a court house in Delaware. The people who worked for them on the other hand have plenty of self interest. Their CEO's raked in tens of millions of dollars while at the same time dooming their companies, as well as subordinate employees, and shareholders (i.e. the actual owners of these companies). Their self interest in protecting their bonuses is the stuff of legend. Their interest in sound banking, not so much.
Wickedness in high places is why markets are regulated in the first place. The prevention of fraud is also a reason for regulation of the markets (being against fraud is something that followers of Ayn Rand claim they are interested in, but never find time for with all the arguing in protection of some failed CEO's bonus). For here on out, in the real world, this will be about what regulations will be needed to protect people. Not about the propagation of various free-market fantasies.
<"Lending Institutions" have no self-interest or self anything else. They are pieces of paper on file in a court house in Delaware. The people who worked for them on the other hand have plenty of self interest. Their CEO's raked in tens of millions of dollars while at the same time dooming their companies, as well as subordinate employees, and shareholders (i.e. the actual owners of these companies). Their self interest in protecting their bonuses is the stuff of legend. Their interest in sound banking, not so much.
Good Lord, I hate pragmatism.
The people who lent their money to those banks did so giving consent for the banks to take place in subprime lending. Banks will never have an interest in sound banking if the government continuously gives them a blank check that they will be bailed out if the bank goes under. Subprime lending is an incredibly irrational business practice. The government has no business regulating how banks lend out their money. If people are stupid enough to give their money to a bank that practices subprime lending, in a free-market they would learn that the hard way. The government also has no business encouraging banks to participate in subprime lending, something they've been been doing since 1938 with the establishment of Fannie Mae.
"If people are stupid enough to give their money to a bank that practices subprime lending, in a free-market they would learn that the hard way."
Well, in many cases the banks pooled prime and subprime loans together to make the portfolio appear safer than it was. Some investors were deceived in those cases, so I cannot fault them entirely.
"The government also has no business encouraging banks to participate in subprime lending, something they've been been doing since 1938 with the establishment of Fannie Mae."
Subprime lending is a more recent phenomenon than the establishment of Fannie Mae. In fact, F.M. actually lobbied the government to give them more leeway and *exempt* them from regulation for the past 10 years or so, which coincides with the rise of subprime lending:
However, the lenders had their own role in this that cuts deeper into the underlying causes of the financial crisis. The conditions for not only subprime lending, but also collateralized debt obligations, asset securitization and the other 'irrational' (yet initially profitable) practices of the credit crunch were mainly created by the repeal of the Glass-Steagall act. This allowed lenders to combine their commercial and investment banking and opened the way for greater speculation. And it was the banking industry who lobbied heavily for its repeal by the government, in the name of less regulation.
Now we are seeing the folly of these unregulated manna-from-heaven schemes that the banking industry, government and even investors desired. I'm faulting everyone in this; let's not pretend any of them were acting rationally.
You people know even less about economics than you do about philosophy. Greenspan was never an advocate of the free market from the 70s on. He never would have accepted the Fed position if he was. Even in the NBI days he was weak, he was a Chicagoite, not an Austrian, which is why many of us skipped his NBI course. When you have read Human Action by Ludwig Von Mises and Man, Economy & State by Murray Rothbard, you don't need watered down Chicagoism. Rand never invented Austrian economics, she endorsed it. The best work ever done here is by a follower of hers, George Reisman in Capitalism, about 2,000 pages in a regular sized book. The crisis is entirely due to government interventionism, not any nonexistent free market. For another source check out many articles on this subject at lewrockwell.com, not exactly a pro-Rand site. Normally I wouldn't respond to a pair of Popperian Dime Store Kantian retreads but your comments here (N&B) are plain stupid. As regards Rand you will even throw in the kitchen sink. Adios.
Anon: >Normally I wouldn't respond to a pair of Popperian Dime Store Kantian retreads but your comments here (N&B) are plain stupid.
Just another bold Anonymous Objectivist. Funnily enough, nothing you've said contradicts what we've said. But then Randians are not well known for reading what they criticise...;-)
"“The cycle starts with government intervening into the economy and imposing regulations and controls on business. This distorts the free market, leading to economic dislocations. When the problems caused by these distortions inevitably follow, everyone blames the free market and its greedy capitalists. The proposed solution? More government controls. Over the years, conservative critics of creeping government have repeatedly exposed this illogic but have always been helpless to explain why the cycle keeps repeating, decade after decade."
Contrary to the above assertion (be it in quotes or not), there is every indication that the roots of the current financial crisis were made possible only by a decrease in regulation.
Fannie Mae was simply following the lead of the private lending corporations in lobbing the government for deregulation of its own business and the ability to make subprime loans. In fact, the areas of derivatives, debt collateralization and securitization that led to this mess were among the *least* regulated within the banking industry to begin with. Repealing Glass-Steagall only made it easier to bundle these and cover up how risky they really were to the investors.
It is perplexing why people assume the government, made up of people and desiring revenue and power, is any better or worse than private corporations which are made up of people and hence cut from the same cloth.
The main difference between government and private businesses is incentives. Not too many private businesses are run the way that say, the public school system is. If they did run that way, they would not be running for long, because parents would take their kids out of those schools and put them in better schools that delivered results.
Most businesses are run just that way - with a relentless focus on results because their survival requires it. Most government agencies are run like the public school system - Machiavellian bureaucrats pushing paper without accomplishing much of anything.
It's the old DMV analogy - why should the DMV hire happier employees, keep cleaner facilities, or increase efficiency if doing so will not bring them (or cost them) even one more customer? Their business is guaranteed regardless.
Jay: "Most businesses are run just that way - with a relentless focus on results because their survival requires it."
That's how it works in most cases, particularly where businesses are actually owned by the individuals running them. Alas, because of liability issues, it became necessary to develop limited liability and the corporation, in which ownership often becomes divided from management. It can become especially problematic when ownership is spread out over many people, because when many people own something, the incentive system starts to break down (which is why socialism doesn't work). An additional problem can arise whenver long-term and short-term interests conflict, since individuals (particularly when they are not owners and won't necessarily benefit from long-term investments) tend to over-discount short-term versus long-term interests in any society where "rational" self-interest becomes the primary consideration.
It can become especially problematic when ownership is spread out over many people, because when many people own something, the incentive system starts to break down (which is why socialism doesn't work.) - Greg ___________________________________
Does this mean then you believe stock market is contrary to the spirit of free market?
Remember boys and girls when, during the housing bubble, mortgage brokers and investment bankers were complaining about the government forcing them to lend money to lower income individuals to buy houses?
What? you don't remember that happening? Wow, Me neither...
I do remember the huge commissions that mortgage brokers and realtors were racking up during the bubble, I also remember the bonuses that investment bankers were paid. It's almost as though bankers wanted to make these loans. Like they were paid big bucks to make these loans, and wanted to continue to dance for as long as the music lasted.
I think this video sums up what was happening better than so called philosophical argument here has.
I like John Reed's take on the financial meltdown:
"If you turned back the clock to about 1990 and eliminated either the Democrat or Republican policies, the problem would be smaller, but not non-existent. You would have to eliminate both sets of policies to make the problem go away completely. Both parties and their presidential candidates are scum. They only different in the ways they are corrupt. Democrats never saw a poor person they did not want to throw the taxpayer’s money at. Republicans never saw a military program they did not want to throw taxpayers’ money at. In the subprime crisis, the Democrats favored policies that they believed would help them get black votes and low and middle class votes, regardless of the danger to the taxpayers. Republicans favored policies that would let businesses do what they wanted regardless of the danger to the taxpayers.
The basic pertinent Democrat principle is socialism which is invalid.
The basic pertinent Republican principle is deference to the free market which is generally correct, but which does not apply to areas where the taxpayers’ money is being used, or may be used, as in the $700 billion bailout. In other words, the free market is fine when the participants are risking their own money. It cannot be unregulated when the taxpayers’ money is being spent or risked.
Why did this happen? The regulators and politicians did not want to be party poopers. When prices were rising year after year, the warning signs were there, but the public did not think anything was wrong. Regulators are supposed to blow the whistle anyway. They generally did not either on their own initiative or because of political pressure not to. Politicians never stop parties. Preventing something that the voters are not worried about from happening gets you no votes. Politicians are only interested in votes. They could care less about stopping bad things from happening."
Red Grant: "Does this mean then you believe stock market is contrary to the spirit of free market?"
No, but I don't regard the Stock Market as the most crucial element of the free market. Look, the Stock Market, as well as corporations, are necessary for industrial capitalism. But that doesn't mean there aren't problems associated with them, and the problem of systematic irrationality stemming out of the dominance of short-run self-interest in finance capitalism constitutes a grave danger to the free market. This short-run self-interest problem would be less dire if there were no separation between ownership and control of American business, because then those who controlled the businesses would have a long-term interest in them precisely because they would also own them.
This short-run self-interest problem would be less dire if there were no separation between ownership and control of American business, because then those who controlled the businesses would have a long-term interest in them precisely because they would also own them. - Greg ___________________________________
So does this mean then you believe shareholders as a group do not have the control of the business where they have the stocks?
I suppose the self-interest of lending institutions will never be able to protect us from the interference of the government.
ReplyDeleteThe only thing I see here is Greenspan's efforts to deflect blame from himself as the architect of the Fed's deadly easy-money policies perpetrated during his near-20-year reign as Chairman. Perhaps no single human being is as responsible for the financial chaos we see around us, nor for the very public execution of capitalism based on trumped-up charges.
ReplyDeleteGreenspan is a miserable traitor to the ideals that he trumpeted during his association with Ayn Rand. And anyone who knows anything about Objectivism should know that his actions over the last 30 years have been anything but consistent with the philosophy.
Mark:
ReplyDelete>Greenspan is a miserable traitor to the ideals that he trumpeted during his association with Ayn Rand.
This, like Brandon Byrd's article, misses the point. The issue is not "was Alan Greenspan a true Objectivist?" Everyone knows he wasn't. (And according to doctrine the only "true Objectivist" was Ayn Rand anyway!)The point is, did his underlying anti-intervention ideological stance, which was heavily influenced by Rand, make a major contribution to the current calamity which engulfs us? The answer is, in his own words above, yes.
Mr Barnes,
ReplyDeleteYou nailed it right on the head! Greenspan, in my humble opinion, was a fraud as Fed chief and still is. I recall independent senator Sanders grilling Greenspan regarding his myopia on economic reality Americans have been under. It was a classic!
"Let's hope we are all wealthy and retired by the time this house of cards falters" Employee of Standard and Poor's, a credit rating company.
ReplyDeleteI suppose the self-interest of lending institutions will never be able to protect us from the interference of the government. herbsewell, a commentator on Ayn Rand Contra Human Nature, a blog to discuss the philosophy of Ayn Rand.
"Lending Institutions" have no self-interest or self anything else. They are pieces of paper on file in a court house in Delaware. The people who worked for them on the other hand have plenty of self interest. Their CEO's raked in tens of millions of dollars while at the same time dooming their companies, as well as subordinate employees, and shareholders (i.e. the actual owners of these companies). Their self interest in protecting their bonuses is the stuff of legend. Their interest in sound banking, not so much.
Wickedness in high places is why markets are regulated in the first place. The prevention of fraud is also a reason for regulation of the markets (being against fraud is something that followers of Ayn Rand claim they are interested in, but never find time for with all the arguing in protection of some failed CEO's bonus).
For here on out, in the real world, this will be about what regulations will be needed to protect people. Not about the propagation of various free-market fantasies.
<"Lending Institutions" have no self-interest or self anything else. They are pieces of paper on file in a court house in Delaware. The people who worked for them on the other hand have plenty of self interest. Their CEO's raked in tens of millions of dollars while at the same time dooming their companies, as well as subordinate employees, and shareholders (i.e. the actual owners of these companies). Their self interest in protecting their bonuses is the stuff of legend. Their interest in sound banking, not so much.
ReplyDeleteGood Lord, I hate pragmatism.
The people who lent their money to those banks did so giving consent for the banks to take place in subprime lending. Banks will never have an interest in sound banking if the government continuously gives them a blank check that they will be bailed out if the bank goes under. Subprime lending is an incredibly irrational business practice. The government has no business regulating how banks lend out their money. If people are stupid enough to give their money to a bank that practices subprime lending, in a free-market they would learn that the hard way. The government also has no business encouraging banks to participate in subprime lending, something they've been been doing since 1938 with the establishment of Fannie Mae.
"If people are stupid enough to give their money to a bank that practices subprime lending, in a free-market they would learn that the hard way."
ReplyDeleteWell, in many cases the banks pooled prime and subprime loans together to make the portfolio appear safer than it was. Some investors were deceived in those cases, so I cannot fault them entirely.
"The government also has no business encouraging banks to participate in subprime lending, something they've been been doing since 1938 with the establishment of Fannie Mae."
Subprime lending is a more recent phenomenon than the establishment of Fannie Mae. In fact, F.M. actually lobbied the government to give them more leeway and *exempt* them from regulation for the past 10 years or so, which coincides with the rise of subprime lending:
http://dyn.politico.com/printstory.cfm?uuid=28F13661-3048-5C12-000140B077704AAA
However, the lenders had their own role in this that cuts deeper into the underlying causes of the financial crisis. The conditions for not only subprime lending, but also collateralized debt obligations, asset securitization and the other 'irrational' (yet initially profitable) practices of the credit crunch were mainly created by the repeal of the Glass-Steagall act. This allowed lenders to combine their commercial and investment banking and opened the way for greater speculation. And it was the banking industry who lobbied heavily for its repeal by the government, in the name of less regulation.
Now we are seeing the folly of these unregulated manna-from-heaven schemes that the banking industry, government and even investors desired. I'm faulting everyone in this; let's not pretend any of them were acting rationally.
You people know even less about economics than you do about philosophy. Greenspan was never an
ReplyDeleteadvocate of the free market from the 70s on. He never would have accepted the Fed position if he was. Even in the NBI days he was weak, he was a Chicagoite, not an
Austrian, which is why many of us skipped his NBI course. When you
have read Human Action by Ludwig Von Mises and Man, Economy & State
by Murray Rothbard, you don't need
watered down Chicagoism. Rand never
invented Austrian economics, she endorsed it. The best work ever done here is by a follower of hers,
George Reisman in Capitalism, about 2,000 pages in a regular sized book. The crisis is entirely
due to government interventionism,
not any nonexistent free market.
For another source check out many articles on this subject at lewrockwell.com, not exactly a pro-Rand site. Normally I wouldn't respond to a pair of Popperian Dime Store Kantian retreads but your comments here (N&B) are plain
stupid. As regards Rand you will even throw in the kitchen sink.
Adios.
Anon:
ReplyDelete>Normally I wouldn't respond to a pair of Popperian Dime Store Kantian retreads but your comments here (N&B) are plain stupid.
Just another bold Anonymous Objectivist. Funnily enough, nothing you've said contradicts what we've said. But then Randians are not well known for reading what they criticise...;-)
"“The cycle starts with government intervening into the economy and imposing regulations and controls on business. This distorts the free market, leading to economic dislocations. When the problems caused by these distortions inevitably follow, everyone blames the free market and its greedy capitalists. The proposed solution? More government controls. Over the years, conservative critics of creeping government have repeatedly exposed this illogic but have always been helpless to explain why the cycle keeps repeating, decade after decade."
ReplyDeleteContrary to the above assertion (be it in quotes or not), there is every indication that the roots of the current financial crisis were made possible only by a decrease in regulation.
ReplyDeleteFannie Mae was simply following the lead of the private lending corporations in lobbing the government for deregulation of its own business and the ability to make subprime loans. In fact, the areas of derivatives, debt collateralization and securitization that led to this mess were among the *least* regulated within the banking industry to begin with. Repealing Glass-Steagall only made it easier to bundle these and cover up how risky they really were to the investors.
It is perplexing why people assume the government, made up of people and desiring revenue and power, is any better or worse than private corporations which are made up of people and hence cut from the same cloth.
Akhentu,
ReplyDeleteThe main difference between government and private businesses is incentives. Not too many private businesses are run the way that say, the public school system is. If they did run that way, they would not be running for long, because parents would take their kids out of those schools and put them in better schools that delivered results.
Most businesses are run just that way - with a relentless focus on results because their survival requires it. Most government agencies are run like the public school system - Machiavellian bureaucrats pushing paper without accomplishing much of anything.
It's the old DMV analogy - why should the DMV hire happier employees, keep cleaner facilities, or increase efficiency if doing so will not bring them (or cost them) even one more customer? Their business is guaranteed regardless.
Jay: "Most businesses are run just that way - with a relentless focus on results because their survival requires it."
ReplyDeleteThat's how it works in most cases, particularly where businesses are actually owned by the individuals running them. Alas, because of liability issues, it became necessary to develop limited liability and the corporation, in which ownership often becomes divided from management. It can become especially problematic when ownership is spread out over many people, because when many people own something, the incentive system starts to break down (which is why socialism doesn't work). An additional problem can arise whenver long-term and short-term interests conflict, since individuals (particularly when they are not owners and won't necessarily benefit from long-term investments) tend to over-discount short-term versus long-term interests in any society where "rational" self-interest becomes the primary consideration.
___________________________________
ReplyDeleteIt can become especially
problematic when ownership is spread out over many people, because when many people own something, the incentive system starts to break down (which is why socialism doesn't work.) - Greg
___________________________________
Does this mean then you believe stock market is contrary to the spirit of free market?
Remember boys and girls when, during the housing bubble, mortgage brokers and investment bankers were complaining about the government forcing them to lend money to lower income individuals to buy houses?
ReplyDeleteWhat? you don't remember that happening? Wow, Me neither...
I do remember the huge commissions that mortgage brokers and realtors were racking up during the bubble, I also remember the bonuses that investment bankers were paid. It's almost as though bankers wanted to make these loans. Like they were paid big bucks to make these loans, and wanted to continue to dance for as long as the music lasted.
I think this video sums up what was happening better than so called philosophical argument here has.
I like John Reed's take on the financial meltdown:
ReplyDelete"If you turned back the clock to about 1990 and eliminated either the Democrat or Republican policies, the problem would be smaller, but not non-existent. You would have to eliminate both sets of policies to make the problem go away completely. Both parties and their presidential candidates are scum. They only different in the ways they are corrupt. Democrats never saw a poor person they did not want to throw the taxpayer’s money at. Republicans never saw a military program they did not want to throw taxpayers’ money at. In the subprime crisis, the Democrats favored policies that they believed would help them get black votes and low and middle class votes, regardless of the danger to the taxpayers. Republicans favored policies that would let businesses do what they wanted regardless of the danger to the taxpayers.
The basic pertinent Democrat principle is socialism which is invalid.
The basic pertinent Republican principle is deference to the free market which is generally correct, but which does not apply to areas where the taxpayers’ money is being used, or may be used, as in the $700 billion bailout. In other words, the free market is fine when the participants are risking their own money. It cannot be unregulated when the taxpayers’ money is being spent or risked.
Why did this happen? The regulators and politicians did not want to be party poopers. When prices were rising year after year, the warning signs were there, but the public did not think anything was wrong. Regulators are supposed to blow the whistle anyway. They generally did not either on their own initiative or because of political pressure not to. Politicians never stop parties. Preventing something that the voters are not worried about from happening gets you no votes. Politicians are only interested in votes. They could care less about stopping bad things from happening."
SRC: http://johntreed.com/meltdown.html
Red Grant: "Does this mean then you believe stock market is contrary to the spirit of free market?"
ReplyDeleteNo, but I don't regard the Stock Market as the most crucial element of the free market. Look, the Stock Market, as well as corporations, are necessary for industrial capitalism. But that doesn't mean there aren't problems associated with them, and the problem of systematic irrationality stemming out of the dominance of short-run self-interest in finance capitalism constitutes a grave danger to the free market. This short-run self-interest problem would be less dire if there were no separation between ownership and control of American business, because then those who controlled the businesses would have a long-term interest in them precisely because they would also own them.
Jay,
ReplyDeleteBrilliant article.
___________________________________
This short-run self-interest problem would be less dire if there were no separation between ownership and control of American business, because then those who controlled the businesses would have a long-term interest in them precisely because they would also own them. - Greg
___________________________________
So does this mean then you believe shareholders as a group do not have the control of the business where they have the stocks?