One-Two Punch: Who Did More Damage to the US Economy, Greenspan or Rubin?



Four years ago today, Peter Goodman of the NYT published this article about former Fed Chair Alan Greenspan, titled Taking Hard New Look at a Greenspan Legacy.

After listing folks like Warren Buffett and George Soros and Felix Rohatyn who thought derivatives were far too dangerous to allow unfettered trading, one man took the other side of the deregulatory argument — Alan Greenspan:

“One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserv Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Today, with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only once in a century,” his faith in derivatives remains unshaken.” (emphasis added)

The whole article is worth reading. It reflects the early days of the unraveling of the Maestro’s reputation, whose fall from grace accelerated as the crisis wound on. Today, it lay in ruins, where it deserves to be.

Few men have wrought more economic damage in the misguided pursuit of a bad economic idea then former Fed Chief Alan Greenspan.

No, as it turns out, neither Banks nor Markets can regulate themselves . . .



Taking Hard New Look at a Greenspan Legacy
NYT October 8, 2008

Category: Federal Reserve, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Revisiting the Greenspan Legacy (circa 2008)”

  1. number2son says:

    There’s a faded rectangle on the wall of Mr. Rubin’s office where that photo once hung.

    Same goes for Greenspan’s office.

  2. wcvarones says:

    It’s not a simple matter of regulating or not regulating.

    Obviously, Glass-Steagall shouldn’t have been repealed, derivatives should be used less and disclosed more, and capital standards should be much higher, whether enforced by freer markets or by regulators.

    But Greenspan’s greatest crime is not in not regulating; it’s in his deliberate, serial bubble-blowing that destroyed the economy. We are tracking his victims at Greenspan’s Body Count.

  3. mathman says:

    i vote Greenspan, but will probably be proved wrong.

    Currently though, we have the political circus to look forward to. Howard gives his take on our situation:

    (from article)
    Of course, the issues this time around are framed with the presumption that all the current rackets of political economy can be kept running – everything from Fannie Mae to Medicare to suburbia to the systematic looting of the future by the Federal Reserve’s shell-game operations with every loser bond instrument lately fobbed off on hopelessly rigged markets – which is exactly the opposite of what reality has in store for us. In fact, the salient feature of these times is the remorseless running down of all these rackets to their entropic end points.

    The sad part is that everyone from the leadership down to the lowly clientele of food stamps and gamed disability payments is locked into the vast array of rackets that constitute our national life, and the truth of their failure thresholds is too terrifying to entertain. What to many appears to be a “conspiracy of elites” is just our way of life. Evidence of this is the increasingly eerie way that the financial crimes of recent years somehow vanish into the ethers of history without any official notice from either the media or the police powers of society. In a very serious time, we are just not a serious people. Anything goes and nothing matters.

  4. Conan says:

    If you would only throw in Larry Summers you would have the complete picture of what we are now reaping!!

    All three will be treated hopefully as they deserve as history is being written. Too bad at the time they weren’t stopped BEFORE the damage was done.

    For the record this was bi parasitism at it’s worst. One Republican and Two Democrats. What a mess!!!!


    BR: See my 11:30 post later today

  5. Taliesyn says:

    Greenspan by far because of the length of time he was chairman whereas Goldman Saxman Rubin only did his share of *bring Wall St. into the White House* damage for 8 years. Would love to read a thorough report of what Rubin brought to the table that led up to the DotComBomb that should’ve served as lessons learned template , but then Bush-Wah got in and to harmonize with the one party Congress and as a direct result we have this worse economic debacle with apparently *no* lessons learned at all. This all post Enron , Worldcom , need I go on.
    The importance with the Sect of Treas is as lead *enforcer*,or corporate police commissioner.
    A reg is only as good as it’s enforced. Turn a pro-WallSt.St blind eye and no cop on the beat. That said Rubin got some ‘splainin’ to do.
    But * ideologically correct * Ayn Randian Moony Greenspan hands down did the most damage because his reputation & authority remained *unchallenged*, especially so by the 1994 Gingrich Revolution Congress ( and Senate ) who’s oversight job also led up to the DotComBomb , Enron,WorldCom,etc , and now this the worst of the 3 messes when lessons should been learned.
    But no , *Atlas Shrugged* ideology uber alles.
    Kinda knew something bad was about to happen when , possibly sensing something more than he would ever let on , Greenspan stepped down ( and what was Bernanke’s specialty study? the Great Depression. )
    All that was missing was a sudden dose of that other Goldman-Saxman for Sect. of Treas. Hank Paulson parachuted in replacing John *Do Nothing* Snow and we have DejaVu all over again only even worse than the DotComBomb *only 6 years previous* !
    Bottomline: We can no longer *afford* to be a bailout nation.

  6. bmoseley says:

    once i learned that he believed in Ayn Ryn i knew we were in for trouble. how could you put someone with those beliefs in charge of the Fed?

  7. econimonium says:

    mathman you comment just lit a nerve. How much money, honestly, do you think is “gamed” from food stamps, disability, and other federal programs and what would the savings be if we could stop all the gaming? Do you subscribe to the view that to help the maximum number of people who deserve it you have to put up with a certain percentage of gaming? If not, then why do you put up with retail prices and credit cards who’s price and rates reflect a certain percentage of “gaming” due to shrinkage and default? Every retail price on the planet, and every credit card rate is higher because people steal. The mortgage mess also represents the same percentage of people stealing…they’re instead not called thieves, they’re called “strategic defaulters” and we ALL pay the price. The abject and willful stupidity of statements like this astonishes me. There will ALWAYS be a percentage of people who game, who steal, and otherwise connive no matter what the rules are. Get over it and start talking about needless waste, not statistical waste. These programs help a huge number of people scrape by, and I mean scrape by. If some game it, that’s a statistical part of whatever you do to the program. Have a brain.

    And for me, Greenspan is the culprit head and shoulders above everyone else. It was his job to take the punch bowl away and for political reasons he didn’t. His monumental hubris in ignoring bubbles that were plain to see from all of our lowly stations is epic. He should be trashed in history books and held up as the epitome of failure as he so richly deserves to be. The main reason being, he was intelligent enough to know, but was intoxicated by his own press clippings calling him “the maestro”. There is no greater example of a modern fool that I can think of, except maybe George Bush. But the country elected him so it got what it deserved. Greenspan was appointed for his brains. So he deserves a heaping box of scorn.

  8. carleric says:

    Hell, Greenspan couldn’t hold a job outside of government “service”…and we all pay the price and continue paying for his basic stupdity….I could on but simply highly recommend reading Fleckenstein’s book “Greenspan’s Bubbles – The age of ignorance at the Federal Reserve”. And I well remember the almost orgasmic reaction to his easy money no regulation policies. How did that work out for you?

  9. [...] Futures Modernization Act of 2000, and helped to repeal Glass Steagall. Both were proteges of Robert Rubin. PERMALINK Category: Bailout Nation, Bailouts, Federal Reserve, Really, really bad [...]

  10. farmera1 says:

    Greenspan is the head culprit in a long list of people that sold this country down the river, based on a belief that deregulation and self regulation would actually work. Greenspan’s anti-regulation bias was a long held belief. Read his autobiography, THE AGE OF TURBULENCE. He was a great Ayn Rand fan. I wondered how he as a Rander ended up running one of the bigger governmental bureaucratic organizations in the world. In his own words, he decided he could do more “good” on the inside vs handing out pamphlets in the streets.

    Here is a classic back and forth from May of 2003 between Buffett and Greenspan. Guess who was right about derivatives.

    In the 2002 Berkshire Hathaway annual report (an excellent read), Buffett spent a great deal of time explaining derivatives. Again he was right and indeed they are weapons of mass financial destruction.

  11. b_thunder says:

    The worst legacy of Greenspan is his long-term ideological policy enforcer and #2 at the Fed Ben Bernanke. And with Ben it’s 7 years of ZIRP, trillions in free money for the banks, QE (which benefits 90% banks, 10% the rest), moral hazard and possibly enablig the government running astronomic deficits.

    The worst legacy of Rubin is the appointments as the Secretary of the Treasury of another Goldman CEO and his protege Geithner. And with them TARM, abolition of accounting standards for the banks, extend&pretend, zero prosecutions for millions of cases of mortgage fraud.

  12. Frwip says:

    I vote for Greenspan as the worst of the worst, hands down. He was the Great Enabler.

  13. raholco says:

    What I find rather disingeneuous with referring to Buffet is that he’s held up as a paragon of virtue in his dissing of derivatives; yet when you look at some of the bad bets that BRK made, what were they on? You guessed it-derivatives.

    Here’s the $64,000 question-would be better off not having any derivatives at all and let the debt stay put?
    Perhaps a better question would be-should derivatives ever be issued with debt as its foundation?

  14. lburgler says:

    I read “The Age of Turbulence,” which was a massive auto-biographical financial history lesson written by none other than Alan Greenspan.

    Greenspan was personally influenced by Ayn Rand, but did not read her work extensively. He was her friend, and not a close friend. Ayn Rand herself was from a solidly upper-middle class family before her family’s assets were seized in the Bolshevik revolution. Ayn wasn’t just a selfish nutjob, she had personal reasons to distrust crony govts. I wouldn’t place too much weight on what Ayn Rand thought and shared with Alan Greenspan.

    Greenspan learned in SCHOOL that government spending was the primary cause of inflation and that government control over business (tariffs, protectionism, etc) led to decreased competition and poor quality goods, as revealed when the Iron Curtain parted.

    What bothered me while reading The Age of Turbulence, was that Dr. Greenspan did not seem to address the issue of MONETARY manipulation, and in what ways MONETARY manipulation could mimic direct business manipulation.

    It’s all well and good for the captain of the Titanic to tell us that if we just LET GO, the ship will steer itself, or some such nonsense, but it’s unclear what place that kind of person has STEERING THE SHIP!!!

  15. philipat says:

    It’s difficult because there are so many worthy contenders, but I do still support you nomination of Summers as the biggest (Pompous) A****le in America.

  16. scottinnj says:

    I really think Matt Taibbi said all there is to say about Alan Greenspan (cleaned up for the family blog)

    “BAD POLITICAL SYSTEMS on their own don’t always make societies fail. Sometimes what’s required for a real social catastrophe is for one or two ingeniously obnoxious individuals to rise to a position of great power—get a one-in-a-billion [jerk] in the wrong job and a merely unfair system of government suddenly turns into seventies Guatemala, the Serbian despotate, the modern United States. Former Federal Reserve chief Alan Greenspan is that one-in-a-billion [jerk] who made America the dissembling mess that it is today.”

  17. cbjohn1 says:

    Bernanke certainly has his work cut out for him, but I think he’s up to the task.