Moyers: James K. Galbraith on Financial Crises
Bill Moyers talks about the economic future with with James
K. Galbraith, Lloyd Bentsen, Jr. Chair in Government/Business Relations
at the LBJ School of Public Affairs at the University of Texas at
Austin. Galbraith is the author of six books, the most recent, The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.
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Source:
Bill Moyers Journal
PBS, October 24, 2008
http://www.pbs.org/moyers/journal/10242008/watch2.html
BILL MOYERS: Watching Alan Greenspan testify before
Congress this week, I tried, I tried very hard not to keep thinking of
Ayn Rand. I failed.
The philosopher and novelist Ayn Rand was Alan Greenspan’s ideological
guru, his intellectual mentor. She was also one of the most amazing
fantasists of the last century, the author of two of the most
influential books of my generation THE FOUNTAINHEAD and ATLAS SHRUGGED,
both timeless best-sellers.
Rand was a hedonist, an exponent of radical self-interest, who so
believed in unfettered, unbridled capitalism that she advocated the
abolition of all state regulations except those dealing with crime. In
the gospel according to Rand, the business community was constantly
beleaguered by evil forces practicing, are you ready for this?
Altruism! Yes, the unselfish regard for the welfare of others was a
menace to greed, and Rand would have none of it.
Alan Greenspan met her as a much younger man in New York and, like so
many blossoming capitalists, was smitten. He has since downplayed her
influence on him, but as Chairman of the Fed for nearly 19 years he
seemed quite Rand-like as he watched Wall Street run wild. Yesterday,
like an old warrior still in a fog after his armies have been routed
from the field of battle, he expressed shock at how his ideology has
failed him. He didn’t see it coming, he told the House Oversight
Committee. The extent of the meltdown is, “Much broader than anything
that I could have imagined,” a “Once-in-a-century credit tsunami.” The
wondrous glories of a free market with no need of pesky oversight had
somehow gone wrong. Now you tell us.
ALAN GREENSPAN:
I made a mistake in presuming that the self-interests of organizations,
specifically banks and others, were such as that they were best capable
of protecting their own shareholders and their equity in the firms…
CHAIRMAN WAXMAN:
In other words, you found that your view of the world, your ideology, was not right, it was not working.
ALAN GREENSPAN:
Absolutely, precisely. You know, that’s precisely the reason I was
shocked, because I have been going for 40 years or more with very
considerable evidence that it was working exceptionally well.
BILL MOYERS: With his ideological blinders stripped away by
reality, Alan Greenspan might well do penance by curling up this
weekend not with THE FOUNTAINHEAD and ATLAS SHRUGGED but with James K.
Galbraith’s new book THE PREDATOR STATE: HOW CONSERVATIVES ABANDONED
THE FREE MARKET AND WHY LIBERALS SHOULD TOO. In it, the author asks:
“Why not build a new economic policy based on what is really
happening?” A fundamental question that surely has Ayn Rand and Milton
Friedman spinning in their graves.
James K. Galbraith is with me now. Professor Galbraith once served as
Executive Director of Congress’ Joint Economic Committee. He teaches
economics at the LBJ School of Public Affairs at The University of
Texas, where he also directs the University’s Inequality Project,
analyzing wages and earnings and patterns of industrial change around
the world.
James Galbraith, welcome.
JAMES GALBRAITH:
Pleasure to be here.
BILL MOYERS:
How perilous is this situation?
JAMES GALBRAITH: Oh, very much so. This is the big one. I
have been working on financial crises since the New York City rescue in
1975. And this is, by far and away, the biggest threat to the system as
a whole that we’ve seen in my lifetime and I think the biggest threat
since the late 1920s.
BILL MOYERS: Is it possible that the adrenaline of fear
could push us over the brink into panic so that we stop acting
rationally or deliberately?
JAMES GALBRAITH: Fear is a factor. But we have an
enormous advantage over our predecessors in 1929. We have the fact that
the New Deal happened. And we have the institutions of the New Deal,
though they have been badly damaged in the last decade, they are still
with us. We have deposit insurance. We have Social Security. We have a
government which is capable of acting as the lender of last resort,
which can borrow and spend as needed to deal with this crisis.
So here in the United States the capacity to handle the crisis
exists. What we need is a government that’s willing to use that
capacity, that believes in it. And that’s where the collapse of the old
objectivism of Alan Greenspan is such a fundamental feature of the
present situation, and very timely. With the collapse of that system of
ideas perhaps the way will be cleared for thinking afresh and clearly
about the problems that we face and how to solve them.
BILL MOYERS:
Well, they have been acting as born-again believers in government intervention.
JAMES GALBRAITH: I think, though, that there’s still a
great deal still to be learned and still be to done. We are going to
hear a great deal in the next few weeks about the need for a stimulus
package. And a lot of people will be talking about how they will be
conceding that the government should get involved short term.
But what needs to be stressed is that we’ve seen a breakdown of
an entire system. The consequence of the failure of regulation, of
supervision of the banking system over the past eight years, has been
to cause a collapse of trust, a poisoning of the well.
BILL MOYERS:
Trust?
JAMES GALBRAITH:
Of trust, yes. Banks -
BILL MOYERS:
Between?
JAMES GALBRAITH: Banks no longer trust each other because
they no longer know whether their counterparties are solvent. Customers
no longer trust the banking system. Banks no longer trust the people
who would like to borrow from them for commercial purposes. This is a
poisoned well. It is going to take a fair amount of time for it to be
cleaned up.
BILL MOYERS:
Fair amount of time? What do you mean?
JAMES GALBRAITH: My feeling is, if it is done correctly,
aggressively, effectively, we could begin to work out of it in three
years. But it is not a problem that’s going to be solved with a
six-month program.
BILL MOYERS:
What scares you most right now?
JAMES GALBRAITH:
Well, a week ago or two weeks ago I would have said the possibility that Phil Gramm might become Secretary of the Treasury.
BILL MOYERS:
Your former Texas soul mate, right?
JAMES GALBRAITH: Yes, exactly. Yeah. We have a contest
between a philosophy of deregulation, of de-supervision, a philosophy
of anything goes. Gramm himself was the architect, a deep architect of
the speculative markets that have just collapsed. And an alternative
which says that there really has to be a pragmatic approach to these
problems. And that’s a choice the American public obviously is going to
be making in a few days.
BILL MOYERS:
What’s the worst-case scenario you think about late at night?
JAMES GALBRAITH: Right now the thing that troubles me
most is not the United States. The thing that troubles me most is that
the same ideas of deregulation, of free markets, were applied in the
construction of modern Europe. And the Europeans don’t have the
institutions of the New Deal, a central bank that can lend as
necessary.
BILL MOYERS:
Right.
JAMES GALBRAITH: Government that can borrow as necessary;
that can take the initiative. They have expanded themselves into
Eastern Europe in a way in which Communism was replaced by nothing. And
a financial collapse is going on there now is, in many ways, more
profound than the one we are experiencing here.
BILL MOYERS: But we’ve seen Gordon Brown, the Prime
Minister of Britain, step forward in a way that our own government
hasn’t and try to orchestrate a European-wide response to this.
JAMES GALBRAITH: That is true. And that is, you know,
collection of the finance ministers getting together over the weekend
to try and do this on an ad hoc basis. Mercifully, we have the
institutions of government in this country that can act. The Europeans
are winging it. They have to go against their charter of the Central
Bank, against the Maastricht Treaty and its restrictions on government
spending, government deficits. They- that problem is a systemic
problem. Our problem is a policy problem. We can solve our problem.
BILL MOYERS:
Isn’t our government winging it, too? I mean, the NEW YORK TIMES this week-
JAMES GALBRAITH:
Yeah.
BILL MOYERS:
Had a long story saying that Secretary of Treasury Paulson was behind the curve at almost every turn.
JAMES GALBRAITH: That’s no doubt true. First of all, the
crisis had been developing for a year. When it broke, he sent up a
three-page bill to Congress. Many people said that’s a power grab. My
view was it was a punt. It said to the Congress, “You take this ball.
You write the legislation,” which Barney Frank and the other leadership
of the Congress actually did do. And they came back. And eventually
they passed a bill.
And Paulson has been improvising ever since. He’s done a number of
things that actually I was recommending as early as the 25th of
September in the “Washington Post”. Guarantee all deposits in the
banking system. Support the commercial paper market. Take out equity
investment in the banks, effectively partially nationalizing them. All
of these things which were unimaginable in mid-September are now
policy, even though they were, strictly speaking, part of the bill.
So we are improvising very fast. The next problem is going to
be that the economy needs to be dealt with, not just the financial
sector. The fact is we have a million homes in foreclosure. That
number’s going to be rising. It could be two and a half or five million
in a few months. We are going to have to take very significant steps to
try and keep people in their homes, to try and minimize the amount of
abandonment, the amount of blight, the amount of sort of permanent
damage to the houses out there and to the people who live in them.
BILL MOYERS: Yeah, that’s one calamity I wanted to ask
you about. You own a home on which the value of it is far less now than
the mortgage that you have to pay off. What do we do about that?
JAMES GALBRAITH: You renegotiate the mortgage. And that
is something that has to be done on a case-to-case-by-case basis with
government help. That is what, in the 1930s, Roosevelt established a
Home Owners’ Loan Corporation to do. And we’re going to need to go back
to that model and do something similar. Sheila Bair, the head of the
FDIC-
BILL MOYERS:
Federal Deposit Insurance Corporation.
JAMES GALBRAITH:
- has proposed something quite similar.
BILL MOYERS:
And so has Governor John-
JAMES GALBRAITH:
So we’re-
BILL MOYERS: -Corzine of New Jersey is coming forward
with something like that. Details to follow. But I know he’s groping
with that. Other governors are, too.
JAMES GALBRAITH:
Yeah.
BILL MOYERS:
Can they do it on their own at the state level?
JAMES GALBRAITH: No. It is going to require federal
organization and federal funds. And the states have another problem,
which is states and localities fund themselves from the property tax
and the local economies.
BILL MOYERS:
Right.
JAMES GALBRAITH: Those are collapsing. So they need
support and help to maintain their public services, to keep their
staff, their civil servants on payroll so that you don’t complicate the
housing problem, among other things.
BILL MOYERS:
And since there’s no private capital from that they can borrow now, where do they go?
JAMES GALBRAITH: Well, they have to – the federal
government is going to have to provide both operating revenue and
support for capital investment by state and local government.
BILL MOYERS: What about the other calamity? The other
calamity is that people nearing retirement and the elderly, have really
been hit hard in their pension plans. What happens to them?
JAMES GALBRAITH: Well, you can’t make people whole
individually because everybody made different portfolio choices. Some
were more in the stock market, some less. Those who were more in the
stock market have been hurt harder. What you can do is protect the
population as a whole. And we have a system for doing that. It’s called
Social Security.
It supports today about 40% of the American elderly population
has basically no other income. It’s more than half of the retirement of
maybe 50 or 60% of that population. Social Security benefits, except
for inflation adjustment, haven’t been raised in a generation. We ought
to think about replacing the losses to some degree in the aggregate
that have occurred in the markets by raising Social Security benefits
and particularly raising them for the poorest and most vulnerable.
BILL MOYERS:
For a temporary measure?
JAMES GALBRAITH:
Well, I’m in favor of doing it on a permanent basis.
BILL MOYERS: But, you know, you and everybody else have
been reading or talking to or calling for more spending, more spending
because that’s the only way you say to get capital into the system. But
where’s that money going to come from, Jamie?
JAMES GALBRAITH: The government has no problem with
money. What we’re learning, first of all, is that the dollar remains
the anchor currency of the world. The euro is the one, is the currency
that’s collapsing right now, not the dollar.
Uncle Sam’s credit is excellent. Uncle Sam can borrow short term for
practically nothing these days. Everybody wants to have Treasury Bills
and bonds because they’re safe. Uncle Sam can borrow for 20 years at
4.3%. That’s the same rate that the United States could borrow at for
20 years in the last month of the Eisenhower administration. So from
our point of view, we’re actually well placed, I mean, as the
government of the United States is well placed to take the lead in
pulling the country and the world out of this crisis.
BILL MOYERS: But even Barack Obama’s website calls the
deficit America’s “Domestic Enemy.” Even he’s aware of the fact that
the deficit’s beyond sight.
JAMES GALBRAITH: Well, the deficit isn’t beyond sight.
The deficits in the Bush administration in relation to the size of the
economy were never all that large. They were certainly larger than they
were under Clinton, but that was in part necessary because of the
changed economic situation, the collapse of the dot-com bubble in 2000.
The United States government’s credit is good. The deficit is a
financial number that people are going to have to get used to because
there is no way in these circumstances of avoiding an increase in the
deficit. One of two things can happen. The government can take action
and help stabilize the economy in which case we will have more spending
but also more employment.
Or the government cannot take action and let the economy
collapse in which case we will have much less tax revenue. The deficit
is going to be larger either way. There is no way of avoiding that. The
only question is do you work to have a good economy or do you accept a
terrible economy?
BILL MOYERS:
What are the negative effects of a soaring deficit?
JAMES GALBRAITH: Well, the one thing I would have worried
about is that we might not find lenders who are willing to provide
funds to the U.S. government, that the Chinese or the Japanese might
decide that they would rather be in some other currency and that we’d
then have trouble with inflation. But that’s not going to happen.
It’s not going to happen because, as it turns out, the major
alternative, the euro, simply isn’t viable as a reserve asset for the
rest of the world. It’s the dollar or nothing. So the United States
basically can finance itself to the extent necessary to deal with this
crisis. And I’m right now quite sanguine about that, quite confident
that we won’t face a problem.
BILL MOYERS:
You call your book THE PREDATOR STATE, what do you mean predator?
JAMES GALBRAITH: What I mean is the people who took over
the government were not interested in reducing the government and
having a small government, the conservative principle. They were
interested in using these great institutions for private benefit, to
place them in the control of their friends and to put them to the use
of their clients. They wanted to privatize Social Security. They
created a Medicare drug benefit in such a way as to create the maximum
profit for pharmaceutical companies.
They used trade agreements to extend patent protections for
various interests or to promote the expansion of the corporate
agriculture’s markets in the third world. A whole range of things that
were basically political and clientelistic. That’s the predator state.
BILL MOYERS:
You call it a corporate republic.
JAMES GALBRAITH:
It is a corporate republic.
BILL MOYERS:
Which means that the purpose of government is to divert funds from the public sector to the private sector?
JAMES GALBRAITH: I think it’s very clear. They also
turned over the regulatory apparatus to the regulated industries. They
turned over the henhouse to the foxes in every single case. And that is
the source of the decline in, the abandonment of environmental
responsibility, the source of the collapse of consumer protection, and
the source of the collapse of the financial system, all trace back to a
common root, which is the failure to maintain a public sector that
works in the public interest, that provides discipline and standards, a
framework within which the private sector can operate and compete.
That’s been abandoned.
BILL MOYERS: We saw what Alan Greenspan said yesterday.
But did you see what the chairman of the Securities and Exchange
Commission, Christopher Cox, said? I mean, it was one of the great
recantings in modern American history. Quote, “The last six months have
made it abundantly clear that voluntary regulation does not work.”
Now, we all know that the government can screw up, too. We all know
that government can make serious mistakes. What kind of regulation do
you think we should have that doesn’t poison and punish entrepreneurial
talent but protects the public interest?
JAMES GALBRAITH: Well, first of all, anyone who
thought, up until six months ago, that voluntary regulation could work
was either being dishonest or delusional. Voluntary regulation is
regulation that, by its nature, you can evade. And what happens is that
the people, who are most intent on evading it, on not respecting the
standards, come to take over the process. Their profits are better. And
so they drive the complying firms and businesses to the wall. They
out-compete them.
You need to have a mandatory system so that the firms which are
more technologically progressive, which are safer, which are more
complaint, which provide, which are prudent in the financial sector,
which maintain credit standards so that those firms have a competitive
chance. That’s the first purpose of regulation.
It is a framework which it favors, when it’s done properly,
it’s a framework which favors the more efficient, the more progressive,
the elements that are prepared to work within the guidelines set by a
larger public purpose.
BILL MOYERS:
What kind of regulation do you think might be most effective?
JAMES GALBRAITH: The, well first of all, we need to clean
up the mess that’s there. And that’s going to include a fair amount of
legal intervention, criminal prosecution, malfeasance. There was a lot
of fraud in the housing sector, in the, amongst the loan originators,
amongst the appraisers. This all needs to be investigated. And people
need to be moved out of positions in the financial industry that they
have abused.
The regulatory system going forward is going to have to be
basically like a utility. It’s going to have to treat banking like a
utility with limitations on growth, on rate of return, and on credit in
such a way as to be much more transparent, to make it much easier to
evaluate financial products that are traded. None of this
over-the-counter, occult, too complex to value stuff.
We need to end the offshore tax havens and other ways in which
institutions have hid out from their responsibility to the country to
pay their share of taxes. And we need to have a set of prudential
standards that are reasonable and that basically can put the business
of finance on a sustainable footing. It’ll be a much less glamorous
business going forward. But it will be more reliable for the country as
a whole.
BILL MOYERS: You are such an experienced economist in
your own right. But I hesitate to bring the spirit of your father to
this table. He would have been 100 last week had he not died two years
ago, right? And his classic book, of course, one of his classic books
is “The Great Crash of 1929″. Is the situation today comparable to what
happened when your father was a young economist?
JAMES GALBRAITH: It is. The situation today is very
similar to the moment of panic and collapse that we saw in 1929. And
for very similar reasons. An abandonment of the supervisory
responsibility that should have been applied to keep the speculation
and the fraud and the abuse from getting out of control. So there’s
going to be a major period of correction. And dad, in writing this in
1955, talks about how memory fades and how eventually, although so long
as people remembered ‘29 it wouldn’t be repeated, eventually it would
be forgotten and the underlying speculative impulse would come back.
So the book, in addition to being a great read, is really prescient in
a very balanced way. But I will say that we’re not going to go back to
1929 because in 1929 we hadn’t had Roosevelt. We hadn’t had Kennedy and
Johnson. We had had them now. So we have a body of history to work
with.
BILL MOYERS:
There’s a precedent, you’re saying, that there are tools there if people want to use them.
JAMES GALBRAITH: Tools, not only precedent, there are
institutions. There’s a government structure. And if we use them, we
can avoid, we can’t avoid ‘29. But we can avoid 1930 and 1931, 1932,
when-
BILL MOYERS:
When-
JAMES GALBRAITH: -output fell by a third, unemployment
rose to 25 percent of the labor force and a third or more of the banks
in the country closed and people lost their savings. In fact, we are
already in a position of moving to take steps to prevent that from
happening. We need to recognize, though, that we can never go back to a
system of this kind of buccaneering finance driven, Wall Street-led
economy in which a group of people who are profoundly unqualified to
run the country are, in fact, dictating policy from perches here in
Manhattan.
BILL MOYERS: But there are capitalists like Steve
Forbes, I just read a long article by him in the current issue of
“Forbes Magazine,” who argue that people like you are going to go too
far and that it was actually the government’s excesses and failures in
the ’80s and ’90s that contributed to what began to happen in 2007 with
the meltdown. And that if you have your way, people like you have your
way, you will criminalize business. You will raise taxes and dry up the
economy. You will take government unchecked into the same kind of
catastrophe that unchecked Wall Street has carried us. How do you
answer a Steve Forbes?
JAMES GALBRAITH: Well, first of all, I very much agree
with him, that it was failures of government that were responsible for
this. It was the actual failure, the abandonment, the neglect of the
supervisory regulatory responsibility. That’s at the root of this.
Just as you cannot prosper without a private economy, you cannot
prosper without an effective autonomous government capable of thinking
for itself, capable of balancing things out, of standing for other
interests, of standing for labor and consumers and for the public
interest as a whole. If you don’t have that, you’re going to get these
pyramids, these bubbles, these epidemics of fraud and abuse, and
ultimately the collapse of trust and the collapse of the economy
itself. That’s what’s happened in the predator state.
BILL MOYERS: I wrote down something you wrote
elsewhere, that struck me. You wrote that after World War II our
American system wasn’t imperial. Quote, “We spoke instead of community,
of freedom, of common purposes and common values. And the world took us
seriously because we had paid our dues.” What’s happened to those
values?
JAMES GALBRAITH: Well, it’s clear that world has lost
its confidence in the responsible role of the United States. Iraq is
viewed by the world as reckless and self-serving rather than being a
necessary step to protect the mutual security.
In the financial sector, the world viewed us as a safe haven
because they believed we had effective systems for legality,
transparency and security. That’s taken a hard knock. But we are
rescued for the moment by the fact that other people’s systems turn out
to be even worse. I believe that you can turn a page and that you can
rebuild the position of the country in the world community if you do so
in a way which is fully credible. New people, new philosophies, new
policies.
BILL MOYERS: The book is THE PREDATOR STATE: HOW
CONSERVATIVES ABANDONED THE FREE MARKET AND WHY LIBERALS SHOULD TOO.
James K. Galbraith, thanks for being with me.
JAMES GALBRAITH:
Thank you.
October 28th, 2008 at 3:43 am
Barringo:
Take what Galbraith says and add my recommendation (months old by now) for an “Ombudsman,” and you’ll get pretty close to what will be needed to solve this crisis.
Write it down in blood…
…Say “Eclectic said it” and remember that he did say it.
Yours,
Eclectic
October 28th, 2008 at 4:40 am
For me, it is hard to see any of Ayn Rands theories being practiced by Alan Greenspan during the last 30 years or so. If he sympathized with Ayn Rand, he did not practice her ideas.
For instance, it’s rather odd that Alan Greenspan, if he were that influenced by Ayn Rand, never tried to abolish the fractional reserve banking system.
October 28th, 2008 at 5:12 am
Liber, shhh., you’ll harsh their buzz..
October 28th, 2008 at 5:53 am
Mark, Liber,
The only thing worse than the financial crisis is the fact that from now until eternity people are going to dine out on the fact that Greenspan participated in some discussions in Ayn Rand’s apartment 40 years ago.
October 28th, 2008 at 6:01 am
“But I will say that we’re not going to go back to 1929 because in 1929 we hadn’t had Roosevelt. We hadn’t had Kennedy and Johnson. We had had them now. So we have a body of history to work with.”
It will be very interesting to see if this “The Great Depression can’t happen again because we’ve had a New Deal” trope will prove true over the next few years. One wonders if the interventionists would issue similar mea culpas if, for instance, we see the United States default on its sovereign debt.
October 28th, 2008 at 6:36 am
Graphite,
yes, quite so. with this: “One wonders if the interventionists would issue similar mea culpas..”, though, we already know the answer: towit: “we failed to do Enough, we lacked the Resolve to what needed to be done, there were those in Gov’t that Stood in the Way, et al., ad infinitum..”
this: “Just as you cannot prosper without a private economy, you cannot prosper without an effective autonomous government capable of thinking for itself, capable of balancing things out, of standing for other interests, of standing for labor and consumers and for the public interest as a whole.”–JG, above
“you cannot prosper without an effective autonomous government” is The central flawed Premise in the construct hypothecated by the ‘Interventionists’. Much in the same way that “Wall St.”’s ‘assets’ go down the Elevator each night, so, too, does “Gov’t”’s. The idea of an Autonomous Gov’t is a , true, Howler. That Moyers lets something like that slide, w/o clarification, let alone objection, aptly shows what kind of show he is putting on..
October 28th, 2008 at 7:12 am
“JAMES GALBRAITH: Right now the thing that troubles me most is not the United States. The thing that troubles me most is that the same ideas of deregulation, of free markets, were applied in the construction of modern Europe. And the Europeans don’t have the institutions of the New Deal, a central bank that can lend as necessary.”
He notes we rebuilt Europe with Free Markets. But now we are going to cast that out and become enlightened again? Full of contradictions.
The left will study Sen Obama’s every word on how to fix the screwed up Constitution with its ‘negative’ rights not to grab my house, property, guns and speech. And we will find the new right of redistribution. And after we have stripped Wall St of its capital and spread it around…and no funds are flowing to the economy, then what?
The civil protest to cut off tax flow to the Federal government starts in 7 days. MuniBonds, cash to gold, barter.
October 28th, 2008 at 7:18 am
Anyone who thinks that a Fed chair would disband the FOMC is smoking crack.
The “No Central Bank” crowd has a valid theoretical point, but it fails any sort of sniff test in the real world . . .
Thoughts?
October 28th, 2008 at 7:23 am
BR,
maybe I missed this: “Anyone who thinks that a Fed chair would disband the FOMC is smoking crack.”, but, where’d that come from ?
October 28th, 2008 at 7:32 am
anyway, past that, with this: “The “No Central Bank” crowd has a valid theoretical point, but it fails any sort of sniff test in the real world . . .”
this: “it fails any sort of sniff test in the real world”
it’s pretty simple, after 95 years we’ve gotten pretty used to the stench of the stowage compartment.
http://www.eyewitnesstohistory.com/slaveship.htm
so much so that the fresh air of Freedom seems foreign..
I’d like to see the example that: 1. necessitates a CB, 2. is critical to a functioning Economy, and 3. can’t be facilitated by other means..
October 28th, 2008 at 7:49 am
JKG : Spend money, increase the deficit
BM : Where will the money come from?
JKG : The credit of the US is still good, China , Japan etc will want to lend.
Me : Oh, really !!!
October 28th, 2008 at 8:41 am
BR,
What are all of you Wall Street guys going to do when you have regulated capital markets with utility rates of return as Mr. Galbraith is suggesting. Do you really believe in all this socialist non sense?
October 28th, 2008 at 9:20 am
Free markets? Where? You mean the US with its fiat currency and Christ almighty Fed Chairman? No, you can’t mean it….
October 28th, 2008 at 9:33 am
BR:
The “No Central Bank” crowd has a valid theoretical point, but it fails any sort of sniff test in the real world . . .
Thoughts?
_________________________
I’m not smart enough to know what life would be like without a central bank, but surely we would be better off with less of the kind of tinkering and sucking up to Wall Street and Washington that characterize the Greenspan era. And trashing Milton Friedman without fairly characterizing his views on central banking is the kind of intellectual fraud I expect to see a lot of in coming years. Clearly the pendulum will swing, but let’s keep everyone honest, shall we?
October 28th, 2008 at 9:40 am
Bill Moyers is a left-wing partisan who passes for moderate and well-informed. Sometimes this can be very valuable. For instance, he gave a respectful hearing to Jeremiah Wright when everyone just wanted to denounce the guy without listening to what he wanted to say in its full context.
But Moyers, overall, is tendentious. Think of him a left version of Dick Cheney. Cheney (as we now know) was a total hack. But if you have white (or no) hair and a calm voice, people are soothed by your “gravitas.”
Like I said, that clip might be very good. I find myself agreeing with Moyers adamently about 1/3 of the time. (Full disclosure, unlike Moyers: I’m a libertarian.)
But Moyers purportedly nonpartisan shtick when he’s anything but just rubs me the wrong way.
October 28th, 2008 at 10:24 am
A quick summary of Galbraith’s position: Deficits don’t matter because you get to kick the can down the road a few years.
I reiterate: that which caused the problem cannot also be the solution. The answer to peak debt is not more debt.
October 28th, 2008 at 10:25 am
The financial markets have had to deal with more than 51,000 NEW regulations since 1996.
Greenspan’s actions were anti-Rand. He was involved in committees implementing some of those new regulations. He held interest rates at 1%!!! The quantity, and hence value, of money was manipulated by being printed, by fiat, or by Fed.Res. T-bill sales or purchases.
No wonder people bought homes. The risks were hidden by a severely distorted market, until millions were trapped in the economic current.
This wasn’t a failure of Ayn Rand, deregulation(!??) and the free market, it was the predictable failure of central banking, regulation, & socialism!
The ObmaCain solution? More central bank powers, more regulation, and more socialism. It’s Insane!
October 28th, 2008 at 10:55 am
I love these long form interviews, which really give each person an opportunity to give and take… but I actually have a surprising reaction to the piling on by Moyers.
Greenspan’s political decision to effectively throw Ayn Rand under the bus makes me sick. I’ve lost all respect for the man, almost feel sorry for him when watching his testimony on the hill. Pathetic.
I am not saying Ayn Rand was right, mind you… what I’m saying is Ayn Rand’s theories/ideology/notions have nothing to do with the Greenspan Fed.
Not sure I can explain this very well, but for all these actors to pretend it’s Ayn Rand’s fault is an exquisite straw man!
Fact is, whether the markets/banks were left unregulated is moot…. because our system operates under a mountain of regulations! MOUNTAINS.
BR and many others think some part of this problem rests in lax oversight. Or total lack thereof in the shadow banking system.
But the shadow banking system exists because these players found a way to tunnel through that mountain of regulations.
Making the mountian higher would not have prevented anything.
As to anything Greenspan did NOT do to regulate whatever/whenever was done at the margin. More importantly, considering all his tinkering with interest rates, jawboning markets, etc., Greenspan’s influence on the current crisis is a study in over-reaching, and/or bad analysis that led to poor policy (ie, clanging the deflation alarm bell in 02/03 during a time when commodities and the stock market were on a tear).
This is politically expedient triangulation at its finest: blame a dead woman for an ideology that doesn’t work… based on the fact that the system collapsed under the opposite ideology (mountains of laws and regulations covering the very system that collapsed!!!).
Ayn Rand may have been wrong about everything she ever thought or said, but that has nothing whatsoever to do with the Greenspan Fed.
jw
October 28th, 2008 at 11:13 am
I agree Barry,
It’s one system or the other we have to stick with it. We get into a crisis and we suddenly want to change horses mid Gallop, which is twice as foolish a move as the Zelotry and fundimentalisum.
I like to think both sides are wrong, the problem is we sway too far tward Objectivisum/Supply side… Then we swing Too far to the Demand side/Socialist.
The secret may be a little yin with our Yang.
Point was
Thanks for the link Barry.
October 28th, 2008 at 11:23 am
it’s great to see all the Randians out in force, desperately clutching onto to the last few straws of an ideology that has been proven to have failed so spectacularly. Can’t wait for the “capitalism hasn’t been tried” line. Yup, it was “those regulations” that caused banks, dealers, etc to go on their wild orgy , interestingly while the regulators looked the other way.
and please, stop this “socialism” rubbish – what is happening now is fascism (or Mussolini corpratism as Mde. Smith puts it). Even the most dense must realize that there is no broad social good coming out of this mess – a few rich people get to keep their money, the rest are screwed.
October 28th, 2008 at 11:45 am
It’s always amusing to hear the emotional arguments of the anti-Randians. I’ve never seen one even discuss her metaphysics and epistemology, which is the heart of any philosophy. Instead it’s always the same old false syllogism addressed to her politics:
1. Rand supports free markets.
2. Free markets caused this mess (an assumption spoken with great conviction).
3. Rand was wrong. Free markets are bad. Rand was a nutter. (Notice all of the personal attacks Moyers makes with regard to Rand. She referred to this as Argument from Intimidation. Attack the speaker rather than his positions. Too funny. They’re still doing it sixty years later!) Anyone who ever listened to her is a nutter. Objectivism is nutty. We need more regulation. The absence of regulation is the problem. It’s time to expand the government. But don’t you DARE call us socialist!
Ah, if I had a nickel….
October 28th, 2008 at 12:05 pm
Barry, it’s really quite remarkable how impervious to reason your basic conservative/libertarian is. The last 60 days have demonstrated without a doubt the validity of Galbraith’s positions.
What we’re seeing is the death rattle of conservative/libertarian philosophy. I for one will be enjoying its demise.
October 28th, 2008 at 12:15 pm
It’s always amusing to hear the emotional arguments of the anti-Randians. I’ve never seen one even discuss her metaphysics and epistemology, which is the heart of any philosophy. Instead it’s always the same old false syllogism addressed to her politics:
1. Rand supports free markets.
2. Free markets caused this mess (an assumption spoken with great conviction).
3. Rand was wrong. Free markets are bad. Rand was a nutter. (Notice all of the personal attacks Moyers makes with regard to Rand. She referred to this as Argument from Intimidation. Attack the speaker rather than his positions. Too funny. They’re still doing it sixty years later!) Anyone who ever listened to her is a nutter. Objectivism is nutty. We need more regulation. The absence of regulation is the problem. It’s time to expand the government. But don’t you DARE call us socialist!
Ah, if I had a nickel….
Posted by: Mista B | Oct 28, 2008 11:45:43 AM
too true..
though, with this: “The last 60 days have demonstrated without a doubt the validity of Galbraith’s positions.”
Posted by: weinerdog43 | Oct 28, 2008 12:05:08 PM
wd43, which ones would those be?
October 28th, 2008 at 12:19 pm
The financial markets have had to deal with more than 51,000 NEW regulations since 1996.
I took out my first mortgage in Illinois in 1978, my last one, so far, in CA in 2003.
Amount of paperwork one has to sign, reading is meekly suggested, has grown up by order of magnitude.
Obviously it helped a lot to prevent a wide spread fraud and theft.
Without all those new regulations we could have had all kinds of mortgage crises.
A new set of regulation produced by the same set of brilliant and honest folks like Bawny Fwank, Chris Dodd, Cox, Allen “I do bubbles” Greenspan under wise leadership of Clinton and Jorge Boosh, will succeed tremendously once again.
October 28th, 2008 at 2:34 pm
Wow see how really freaked out the self-professed libertarians have become!!
You all doth protest way too much.
Anyway, arguing with people who believe in the Tooth Fairy a priori is useless, because all they want to talk about is how somebody else took their tooth from under the pillow. I just dropped in for this:
>Those who were more in the stock market have been hurt harder.
Actually maybe not true over the Bush/Greenspan horizon.* A co-worker’s wife is a bigwig in a regional, rural bank. If you know anything about rural W. Pa, you know greybeards abound. That’s pretty much her entire depositor base, it sometimes seems.
Well they aren’t hi-flyers like the people here. They take what little trickles in from SS and maybe a working-class pension and sort it thru CD’s and the like, super-safe returns.
The pain Greenspan’s 1% prime put these people thru was unimaginable. So they may have gotten so far behind the 8-ball that their situation is currently no different than the “more in the stock market” people.
*My god, I just played The Blame Game, didn’t I???
October 28th, 2008 at 2:50 pm
Actually, this is logically defensible:
>Ayn Rand may have been wrong about everything she ever thought or said, but that has nothing whatsoever to do with the Greenspan Fed.
But let me just interject that Ms. Rand’s real basic belief was in the John Galt figure – and the free markets thing was because it supposedly would provide a playgrounds where people like John Galt would assume their rightful postions.
That is, it is just a new way to bow and scrape to a hierachy of supposed nearly-infallible superiors, the same thing that kept many royal lines going well past their sell-by date.
This is the Randian belief that Greenspan admitted to – the belief that there were exemplary people out there, and they could be easily identified by the size of their billfold.
And being the pillars they were, it was much better to give them free rein rather than let those little nasty gummint bureaucrats into the hallowed circles- I mean, what kind of quality can you expect when they are willing to do a job that doesn’t even pay 6 figs?
That’s the mindset that f’d us, and Ayn was, well, the fountainhead of that idiocy.
October 28th, 2008 at 3:31 pm
I agree with a different chris:
These Libertarian posts are simply a bunch pleas for everyone to “clap louder”.
Guess what folks ? Over the last 30 years, we got about as close to a Libertarian government that we’re ever going to get. And it didn’t work. In fact, it failed spectacularly. Time to let the grownups salvage the wreck that is our economy and see what we can save.
October 28th, 2008 at 4:15 pm
I saw Jamie Golbraith last week at a seminar hosted by the New School and DEMOS. If you have a chance to see him, I highly recommend it, even if you don’t agree with his political/economic philosophy. His experience working in the government gives him an interesting perspective on the current financial crisis and adds come credibility to his argument for regulation in over the markets.
-Theo O’Brien
http://PrivateEquityBlogger.com
October 28th, 2008 at 4:15 pm
I saw Jamie Golbraith last week at a seminar hosted by the New School and DEMOS. If you have a chance to see him, I highly recommend it, even if you don’t agree with his political/economic philosophy. His experience working in the government gives him an interesting perspective on the current financial crisis and adds come credibility to his argument for regulation in over the markets.
-Theo O’Brien
http://PrivateEquityBlogger.com
October 28th, 2008 at 5:47 pm
I’m starting to get annoyed with Moyers lately. Just prior to the interview with Gailbraith he tackled the ole “free market” straw man when talking about Greenspan’s acceptance of the failure of “free markets”.
WTF is wrong with everyone? How is it even conceivable to say the words “free market” and Greenspan in the same sentence, when it is the very purpose of Greenspan’s fame maker, the Fed, to interfere in the markets – thus prohibiting them from being free? Moyers has officially pissed me off.
October 28th, 2008 at 5:56 pm
The “No Central Bank” crowd has a valid theoretical point, but it fails any sort of sniff test in the real world . . .
Thoughts?
The real world? Well gosh, it’s a wonder we survive at all without a central bank.
Thank goodness the Rockefellers, Rothschilds, Warburgs, etc., were thoughtful enough to lend their services as central bankers for our benefit. We’d be helpless at the mercy of the free market without their watchful eye protecting us from recessions and depressions and such.
October 28th, 2008 at 6:51 pm
I still completely fail to see how anyone can use the current market circumstances as proof of the failing of free markets. It’s completely unfathomable to think that what we have had over the past 30 years is a free market. As previously noted, we have seen regulation increased by orders of magnitude in that time, micro miss-management of interest rates by the fed, numerous government sponsored agencies leading to market distortions, a practical credit ratings agency cartel sponsored by the government, numerous wasteful subsidies, etc. Clearly, none of this has worked and the solution that everyone is coming to is to put more power into the hands of the government? I guess that makes sense, given the success of government policies. Medicare, SS, welfare have all been resounding successes.
Clearly, opaqueness is key – so that investors can make informed decisions. So the question here is: what went wrong? Why were investors willing to take on so much risk? Why were the banks able to sell so much of the crap that they were peddling? I don’t know the answer to this question, but one thing I do know for a fact is that humans – and the corporations we work for – respond very well to the stimuli applied upon us. Here are some fairly obvious answers to the questions:
1. With rates held at historic lows, the FED was obviously trying to get banks to lend, which is exactly what they got. I like to think of it this way, imagine that very effective regulations were in place, such that the housing crisis never got off the ground. What would have happened then? Would the FED have decided to raise rates? I doubt it. They clearly would have left them at historic lows until increased credit manifested itself in increased prices (flawed measure of inflation) in some other asset class.
2. Low rates also had the effect of starving investors for yield – thus distorting demand.
3. Account deficits made us unable to deal with various currency pegs around the world. These countries used incoming dollars to not only buy government securities, but also mortgage based crap. The huge demand helped to distort the market and was a huge profit potential for banks.
4. Rating’s agencies. The complete lack of a free market for ratings agencies (due in part to the NRSRO) allowed corruption to rule supreme. Why do investors not use rating’s agencies that are actually good at what they do? Why are these agencies that have proved themselves completely inept still nationally recognized?????
5. GSE’s. I don’t buy that the CRA played a major role in this mess; however, unlike BR, I do put some blame on FME, FNM. It is the last point I list, because I believe it is the smallest. However, what I believe the GSE’s did do is provide investor confidence. Yes, they only issued 16% of subprime mortgages, but that is still a huge chunk. I don’t care that lenders were forcing GSE’s to buy more mortgages. The fact is that they did it and I believe it was a signal to other investors that the securities were safe. The government wouldn’t knowingly put taxpayer money at risk, right?
There are also obviously valid points about how deregulation helped contribute to this. My point is that in their assessment of the cause, the government and the fed are in almost complete agreement that deregulation was the only culprit – which it clearly wasn’t. The hammer will swing too far in the other direction now, and excessive regulation – which is inherently blind, inefficient, and rigid – will lead to competitive hindrances for some time to come.
October 28th, 2008 at 7:35 pm
“I still completely fail to see how anyone can use the current market circumstances as proof of the failing of free markets.”
That is because Republics are immune to facts.
Next.
October 28th, 2008 at 7:43 pm
“wd43, which ones would those be?”
Oh, I don’t know. Perhaps the REPUBLICAN Bush administration having to helicopter in $700+B of the public’s money to “save” an industry that was DEREGULATED at the primary behest of Phil Gramm and Alan Greenspan. If you had bothered to have read or watch the interview, you would have seen Mr. Galbraith’s point.
But as I have pointed out, Republics are immune to facts or logic.
October 28th, 2008 at 8:00 pm
DEREGULATED at the primary behest of Phil Gramm and Alan Greenspan. If you had bothered to have read or watch the interview, you would have seen Mr. Galbraith’s point.
You seem to be confusing de-regulation with free markets. They are not the same.
As a pointed out above, central economic planning, such as we have with the Fed, by its very existence prevents there from being a free market.
October 28th, 2008 at 8:03 pm
The Cognitive Dissonance, found below, speaks for itself:
“I still completely fail to see how anyone can use the current market circumstances as proof of the failing of free markets.”
That is because Republics are immune to facts.
Next.
Posted by: weinerdog43 | Oct 28, 2008 7:35:30 PM
“wd43, which ones would those be?”
Oh, I don’t know. Perhaps the REPUBLICAN Bush administration having to helicopter in $700+B of the public’s money to “save” an industry that was DEREGULATED at the primary behest of Phil Gramm and Alan Greenspan. If you had bothered to have read or watch the interview, you would have seen Mr. Galbraith’s point.
But as I have pointed out, Republics are immune to facts or logic.
Posted by: weinerdog43 | Oct 28, 2008 7:43:47 PM
“an industry that was DEREGULATED at the primary behest of Phil Gramm and Alan Greenspan….”
~~
and, this:
“I agree with a different chris:
These Libertarian posts are simply a bunch pleas for everyone to “clap louder”.
Guess what folks ? Over the last 30 years, we got about as close to a Libertarian government that we’re ever going to get. And it didn’t work. In fact, it failed spectacularly. Time to let the grownups salvage the wreck that is our economy and see what we can save.
Posted by: OhNoNotAgain | Oct 28, 2008 3:31:05 PM
ONNA,
you’re a sporting chap, though, you’re just as wrong as one can be..
October 28th, 2008 at 8:03 pm
“Republics are immune to facts”
Need I say more?
I at least presented some topics for discussion. Your reply does nothing to support your position. First, tell me we had a free market and support with evidence. Then, tell me why more regulation would have worked.
I also didn’t state I am a Republican, assuming that’s what you meant. I suppose you place no blame on the Democrats? So the low rates that Greenspan had in place had nothing to do with the fall out of the tech bubble?
October 28th, 2008 at 8:49 pm
“I agree with a different chris:
These Libertarian posts are simply a bunch pleas for everyone to “clap louder”.
Guess what folks ? Over the last 30 years, we got about as close to a Libertarian government that we’re ever going to get. And it didn’t work. In fact, it failed spectacularly. Time to let the grownups salvage the wreck that is our economy and see what we can save.”
This fails on so many levels it stinks!
How can you have freemarkets with paper money? Also, you can’t have freemarkets when banks become “to big to fail!”
Freemarkets in order to work have to operate on both sides of the mountain….
October 29th, 2008 at 1:24 am
Greenspan is a much better Republican than Libertarian. I have no doubt some form of Objectivism runs around in his brain, and that he is shocked that Wall St. is more akin to the Titanic than titans. But his manipulation of the interest rate and his promotion of questionable mortgage instruments was intended to make the Bush administration look good in the short term, and not in the spirit of any Libertarian tenet. The guy’s a hack.
I find Rand’s work unreadable drivel, but I really can’t blame her for Greenspan.
October 29th, 2008 at 1:36 pm
For the benefit of those here who seem to think that our system is remotely close to a Laissez-faire free market, please take the opportunity to read George Reisman’s explainer and educate yourselves.
http://mises.org/story/3165
Just because Paulson, Krugman, Bush, Greenspan, Brown, Sarkozy or anyone else equate our current system with Laissez-faire does not make it so just as calling the sky red would not make it so. A simple glance at a dictionary would tell you as much.
November 26th, 2008 at 4:58 am
I took P.R.s superlative advice, and look what I found!
“The enemies of capitalism and economic freedom … use the accusation of ‘laissez faire’ as a kind of ratchet for increasing the government’s power.”
Today, they continue to play the same game. Always it is laissez faire that they denounce, and whose alleged failures they claim need to be overcome with yet more government regulations and controls.”
>> From J.G. above, “An abandonment of the supervisory
responsibility that should have been applied to keep the speculation
and the fraud and the abuse from getting out of control. So there’s
going to be a major period of correction.”
“Today, the massive interventions not only of the New Deal, but also of the Fair Deal, the New Frontier, the Great Society, and of all the administrations since, have been added to the very major interventions that existed even in the 1920s and to which Hoover very substantially added. And yet we still allegedly have laissez faire. It seems that so long as anyone manages to move or even breathe without being under the control of the government, laissez faire allegedly continues to exist, which serves to make necessary yet still more government controls.
The logical stopping point of this process is that one day everyone will end up being shackled to a wall, or at the very least being compelled to do something comparable to living in a zip code that matches his social security number. Then the government will know who everyone is, where he is, and that he can do nothing whatever without its approval and permission. And then the world will be safe from anyone attempting to do anything that benefits him and thereby allegedly harms others. At that point, the world will enjoy all the prosperity that comes from total paralysis.”
George Reisman, Ph.D.
November 26th, 2008 at 5:24 am
In much the same way that we hold as a basic tenant the separation of church and state (yet honor, to varying degrees, the value of the role played by each) it is my humble opinion that a clear distinction should exist between state and market. Aside from the niggling specifics of how and how much each should serve it’s innate purpose, they should never be con-fused…
It doesn’t matter if you are liberal or libertarian: we all agree with me. Either state/market separation should exist as a check and balance function of gov’t oversight, or it should exist as per a hands-off imperative of true capitalism.
If you’ll forgive my cavalier pedantry; the reason that the current central banking system is so derelict is precisely because it is a monstrous example of collusion at the highest of echelons (the last place there should exist corruption is the one place you’re guaranteed to find it!). And it shows no signs of stopping with the appointment of Geithner to the Treasury. If that isn’t the biggest conflict of interests since God put the Devil in charge of Hell…
Right? Or am I missing something?