The Maestro Has a Few Regrets

Before he became the Chairman of the Federal Reserve Board , Alan Greenspan had a private consultancy. And in the mid eighties it wasn't doing very well. So  he accepted some dodgy clients. And told them what they wanted to hear. One of those clients was Charles Keating, the propietor of Lincoln Savings and Loan, and an entrepeneur with some novel ideas about how the S&L business should be run. So novel that the San Francisco Office of the Federal Home Loan Bank Board and its insurance arm FSLIC was concerned. Particularly after some its examiners raised an alarm. Not to worry, Greenspan told them in a report he prepared for the doubters. Keating's practices were sound and represented the new day in banking opened up by the Garn-St.Germain bill which modernized the "stodgy old" Building societies.

Well you know how that turned out for the public. But Alan kept his business afloat. And when Ronald Reagan needed a successor for Paul Volker he chose the one-time disciple of Ayn Rand to be the next Fed Chief. And that's what he did for the next 16 years. And he had a lot of admirers too. Bob Woodward even wrote a book about him called "Maestro" that implied - not so subtly - that it was Greenspan who was responsible for the boom of the ninteties. Bill was just along for the ride. TIME magazinen was more widespead in its list of heroes putting Alan on the cover with Robert Rubin and Larry Summers as "The Committee to Save the World."  Heady stuff, indeed.

And it is true that Greenspan did give delphic signles that the Clinton budget plan of 1993 was OK by him. He showed his support too by lowering the discount rate - the rate charged to banks when they borrowed money. That made credit easier and, as the deficit came down more investment in the economy assured what some economists call a "virtuous cycle. Eventually the deficit would disappear entirely to be replaced by the politician's favorite problem. What do we do with the surplus? More spending on social programs, health care? Tax cuts? And later, when the stock market started to soar, he gave his famous warning about "Irrational Exuberience" and raised interest rates to curb it. Of course he could have raised margin rates that would have gone a long way to cooling that exuberience but that would have offended his Randian heart, I guess.

Cut to 2001. As Paul Krugman notes in a column this weekend, when George Bush came to the White House on the "mandate" of five Justices in a tainted election he appeared very weak and the centerpiece of his economic plan was a massive tax cut. That was his answer to the surplus. Give the "people" (particularly those in top 5%) their money back."  So what did Alan say? Well he thought paying off the Privately Held Government Debt a terrible idea. Yes, he told Congress, a tax cut is just what the economy needed. The GOP controlled Congress didn't have to be told twice, the Democrats - still shell shocked folded (isn't that a surprise!) and, in an instant, a cut of 1.3 trillion over ten years went on the books. Later, in 2003, with a war looming Greenspan was copacetic about another cut. As Krugman has noted there is no instance in history that he or any other economist can find where a government has gone to war and CUT taxes. But not to worry, says Alan, and while you're at it, make them permanent.

And that's not all folks. Greenspan urged the American people to rid themselves of those onerous fixed rate mortgages and swith to Adjustable Rate products that would save them money. He saw nothing wrong with the sub-prime lenders either  And Alan was always there for the banks. When Long Term Capital Mgmt. went belly up over some poor decisions in the Derivatives Market (with instruments that Burton Malkiel of Princeton said would "confuse the mind of a Yoda" he made sure that the banks that had lent money to these Nobel Prize Winning losers (they followed their own advice!) would not take a financial bath.

Well lets see now. A Stock market Bubble, a housing bubble, a massive deficit where once a surplus existed, not too bad for a Maestro is that?

And now Alan has a book out - called "Turbulent Times" and guess what? Its all those damn Republican's doing. They didn't cut spending. They didn't watch the economy. George Bush is a joke. The two smartes men he ever met in the Oval office were Nixon and Clinton. Bill was particularly good. He got what Alan was doing and worked well with the Fed. And the GOP? They got what deserved in 2006.

Right about now, as everything in the Nation's Capitol is going South the knives are definitely out as everyone is pointing the finger elsewhere.  Mostly at the guy at 1600 Pennsylvania Ave.  And just a few years ago he was such a strong leader! Just ask the WEEKLY STANDARD! There's Paul Bremer. There's George Tenet. I wonder how long before Colin Powell joins the parade.

But Alan Greenspan has established a new standard. Well Bob Dylan said it well: "There's no success like Failure. And Failure's no success at all."