Greenspan's
Dark Legacy Unmasked
By Stephen Lendman
01 October, 2007
Countercurrents.org
After
retiring as the Federal Reserve's second longest ever serving chairman,
Alan Greenspan is now cashing in big late in life at age 81. He chaired
the Fed's Board of Governors from the time he was appointed in August,
1987 to when he stepped down January 31, 2006 amidst a hail of ill-deserved
praise for his stewardship during good and perilous times. USA Today
noted "the onetime jazz band musician went out on a high note."
The Wall Street Journal said "his economic legacy (rests on results)
and seems secure." The Washington Post cited his "nearly mythical
status."
Stanford Washington Research
Group chief strategist Greg Valliere called him a "giant,"
and Bob Woodward called him "Maestro" in his cloying hagiography
(now priced $1.99 used on Alibris and $2.19 on Amazon) that was published
in 2000 as the Greenspan-built house of cards was collapsing. The book
was an adoring tribute to a man he called a symbol of American economic
preeminence, who the Financial Times also praised as "An Activist
Unafraid to Depart From the Rule" - by taking from the public and
giving to the rich.
Others joined the chorus,
too, lauding his steady, disciplined hand on the monetary steering wheel,
his success keeping inflation and unemployment low, and his having represented
the embodiment of prosperity in compiling a record of achievement his
successor will be hard-pressed to match.
In 2004, William Greider
in The Nation magazine had a different view. He's the author of "Secrets
of the Temple" on "how the Federal Reserve runs the country."
He wrote Greenspan "ranks among the most duplicitous figures to
serve in modern American government (who used) his exalted status as
economic wizard (to) regularly corrupt the political dialogue by sowing
outrageously false impressions among gullible members of Congress and
adoring financial reporters."
They were front and center
in the New York Times for the man who "steer(ed) the economy through
multiple calamities and ultimately....one of the longest economic booms
in history....(He earned his bona fides) weather(ing) the Black Monday
stock crash of 1987 (and in 18 and a half years in office) achieved
more celebrity than most rock stars" and may now approach them
in earnings.
The new book of his memoirs
"The Age of Turbulence" is just out for which his reported
advance exceeded $8.5 million (second only to Bill Clinton's $10 for
his memoirs) plus additional royalties if sales exceed 1.9 million copies.
They may given the amount of high-impact publicity it and he are getting
nonstop. And that's not all. He's in great demand on the lecture circuit
at six figure fees, has his own consulting firm, Greenspan Associates
LLC, and his lawyer, Robert Barnett says "virtually every major
investment-banking firm" in the world wants to hire him for his
rainmaking connections.
They have value, not his
market advice, best avoided for the man who engineered the largest ever
stock market bubble and bust in history through incompetence, timidity,
dereliction of duty, and subservience to the capital interests he represented
at the expense of the greater good and a sustained sound economy he
didn't worry about nor did Wall Street.
For firms on the Street and
big banks, he could do no wrong and was above reproach for letting them
cash in big and then get plenty of advance warning when to exit. Most
ordinary investors weren't so fortunate. They're not insiders and were
caught flat-footed by advice from market pundit fraudsters and the most
influential one of all in the Fed Chairman. Just weeks before the market
peak in January, 2000, he claimed "the American economy was experiencing
a once-in-a-century acceleration of innovation, which propelled forward
productivity, output, corporate profits and stock prices at a pace not
seen in generations, if ever."
It was hype and nonsense
and on a par with famed economist and professor Irving Fisher's remarks
just before the 1929 stock market crash and Great Depression when he
claimed economic fundamentals in the country were strong, stocks undervalued,
and an unending period of prosperity lay ahead. It took a world war
a decade later, not market magic, for them to arrive, but before it
did Fisher kept insisting in the early 1930s recovery was just around
the corner. It's the same way Wall Street touts operate today on gullible
investors who even after they've been had are easy prey again for the
next con.
And they're really in trouble
when it comes from the "Maestro," who at the height of the
stock market bubble said: "Lofty equity prices have reduced the
cost of capital. The result has been a veritable explosion of spending
on high-tech equipment...And I see nothing to suggest that these opportunities
will peter out anytime soon....Indeed many argue that the pace of innovation
will continue to quicken....to exploit the still largely untapped potential
for e-commerce, especially the business-to-business arena."
One week later, the Nasdaq
peaked at 5048 and crashed to a low of 1114 on October 9, 2002. It lost
78% of its value, the S&P 500 stock index dropped 49%, and retail
investors lost out while Greenspan was busy engineering another bubble
with a tsunami of easy money for Wall Street and big investors. It's
now unwinding as he gets a big payday for his memoirs and a chance to
rewrite history. He aims to raise himself to sainthood and at the same
time distance himself from the very costly policies he implemented on
top of trillions he helped scam in the greatest modern era wealth transfer
from the public to the rich. More on that below.
Greenspan's Background
and Tenure as Federal Reserve Chairman
Alan Greenspan grew up in
New York, got his B.A. and M.A. in economics from New York University
and later was awarded a Ph.D. in economics from Columbia without completing
a dissertation the degree usually requires. In a highly unusual move,
Columbia made an exception in his case.
Early on, he became enamored
with free market ideologue Ayn Rand, wrote for her newsletters and authored
three essays for her book "Capitalism: The Unknown Ideal."
It expressed her views on capitalism's "moral aspects" and
her attempt (with Greenspan's help) to rescue it from its "alleged
champions who are responsible for the fact that capitalism is being
destroyed without a hearing (or) trial, without any public knowledge
of its principles, its nature, its history, or its moral meaning."
That was in 1966 when Rand,
a staunch libertarian as is Greenspan, believed fundamentalist capitalism
was being battered by a flood of altruism in the wake of New Deal and
Great Society programs she (and Greenspan) abhorred. She defended big
business, made excuses for its wars, and denounced the student rebellion
at the time and the evils of altruism. Greenspan concurred, maintained
a 20 year association with Rand (who died in 1982), and never looked
back.
From 1948 until his 1987
Federal Reserve appointment, he served as Richard Nixon's domestic policy
coordinator in his 1968 nomination campaign and later as Gerald Ford's
Council of Economic Advisers Chairman. He also headed the economic consulting
firm, Townsend-Greenspan & Company, from 1955 - 1987. Its forecasting
record was so poor it was about to be liquidated when he left to join
the Fed. A former competitor, Pierre Renfret, noted: "When Greenspan
closed down his economic consulting business to (become Fed Chairman)
he did so because he had no clients left and the business was going
under (and we found) out he had none (of his employees left)."
That made him Reagan's perfect Fed Chairman choice, and Renfret added
it was Greenspan's failure in private business that got him into government
service in the first place.
He wouldn't disappoint as
Wall Street's man from the start. He bailed it out in 1987 after the
disastrous October black Monday. It was the same way he did in it later
in 1998 following Long Term Capital Management's collapse and again
after the dot-com bubble burst. It was by his favorite monetary medicine
guaranteed to work when taken as directed - floods of easy money followed
by still more until the patient is healed, unmindful that the cure may
be worse than the disease. No matter, it's a new Chairman's problem
with Greenspan claiming no culpability for his 18 and a half year tenure
of misdeeds, subservience to capital, and contempt for the public interest.
His new book claims the opposite.
It's a breathtaking example of historical revisionism that's become
standard practice for the man Sydney Morning News' Political and International
Editor Peter Hartcher calls "Bubble Man" in his new book by
that title. In it, he quotes Bob Woodward saying Greenspan "believed
he had done all he could" to contain over-exuberance when, in fact,
he let it get out of control. He now claims:
-- he didn't support George
Bush's regressive tax cuts for the rich (that helped create huge budget
deficits). In fact, he did, and in 2001 wholeheartedly endorsed this
centerpiece of the administration's economic policy in his testimony
before the Senate Budget Committee. At the time, he cited the economic
slowdown saying: "Should current economic weakness spread....having
a tax cut....may....do noticeable good."
-- he's "saddened (in
his book) that it is politically inconvenient to acknowledge what everyone
knows: the Iraq war is largely about oil." In his typical obfuscating
way to confuse and have things both ways, he tried clarifying his position
in a September interview claiming: "I was not saying that that's
the administration's motive. I'm just saying that if somebody asked
me, are we fortunate in taking out Saddam? I would say it was essential."
He failed to say he supported the Bush administration agenda across
the board, including the Afghanistan and Iraq wars, with reasons given
at the time he's now distancing himself from.
-- no responsibility for
the 2000 stock market bubble. He falsely claimed he never saw it coming
while providing generous amounts of liquidity to fuel it. After citing
the market's "irrational exuberance" in a December, 1996 speech,
he failed to curb it and could have by raising interest rates, margin
requirements, and jawboning investors to cool an overheated market to
restore stability for long-term economic growth. Instead, he did nothing.
He failed to take away the punch bowl, created a bubble, and allowed
it to burst causing investors (mostly retail ones) to lose trillions.
-- no responsibility for
the housing and bond bubbles he created by cutting interest rates aggressively
to 1% and flooding the markets with liquidity. As things got out of
hand, timely responsible action could have avoided the summer, 2007
credit crisis. Again, he allowed a bad situation to get worse to keep
the party going and allow lenders to profit hugely. In the unprecedented
run-up in house prices to an $8 trillion wealth bubble, he derided critics
claiming anything was wrong. He even encouraged homebuyers to take out
adjustable rate mortgages, approved of very risky no down payment purchases,
created the subprime mess as a consequence, and isn't around to address
buyers faced with $1.2 trillion in mortgage resets later this year and
next that will cause many thousands of painful foreclosures.
Affected homeowners won't
likely be cheered by his speech-making bunkum that bubble level asset
prices proved his monetary policies worked by getting investors to demand
lower risk premiums. They also won't be calmed by his arrogant claim
that it's "simply not realistic" to expect the Fed to identify
and deflate asset bubbles when it's real role is to champion flexible
and unregulated markets leaving everyone unprotected on our own.
-- no responsibility for
allowing outstanding US debt to more than triple to around $40 trillion
on his watch that one analyst calls his "most conspicuous achievement."
Those having to pay it off won't thank him.
Greenspan's Role
in the Greatest Modern Era Wealth Transfer from the Public to the Rich
Greenspan was a one-man wrecking
crew years before he became Fed Chairman, and his earlier role likely
sealed the job for him as a man the power elite could trust. He earned
his stripes and then some for his role in charge of the National Commission
on Social Security Reform (called the Greenspan Commission). He was
appointed by Ronald Reagan to chair it in 1981 to study and recommend
actions to deal with "the short-term financing crisis that Social
Security faced....(with claims the) Old-Age and Survivors Insurance
Trust Fund would run out of money....as early as August, 1983."
There was just one problem.
It was a hoax, but who'd know as the dominant media stayed silent. They
let the Commission do its work that would end up transfering trillions
of public dollars to the rich. It represents one of the greatest ever
heists in plain sight, still ongoing and greater than ever, with no
one crying foul to stop it. The Commission issued its report in January,
1983, and Congress used it as the basis for the 1983 Social Security
Amendments to "resolve short-term financing problem(s) and (make)
many other significant changes in Social Security law" with the
public none the wiser it was a scam harming them.
The Commission recommended:
-- Social Security remain
government funded and not become a voluntary program (that would have
killed it);
-- $150 - 200 billion in
either additional income or decreased outgo be provided the Old Age,
Survivors, and Disability Insurance (OASDI) Trust Funds in calendar
years 1983 - 89;
-- the actuarial imbalance
for the 75 year Trust Funds valuation period of an average 1.80% of
taxable payroll be resolved;
-- a "consensus package"
to fix the problem by raising payroll taxes on incomes but exempting
the rich beyond a maximum level taxed. Also a gradual increase in the
retirement age and various other possible short and longer range options
for consideration. The result today is low income earners pay more in
payroll than income tax. For bottom level earners, the burden is especially
onerous. They pay no income tax but aren't exempt from 6.2% of their
wages going for Social Security and Medicare.
-- coverage under OASDI be
extended on a mandatory, basis as of January 1, 1984, to all newly hired
civilian employees of the federal government and all employees of nonprofit
organizations;
-- state and local governments
that elected coverage for their employees under the OASDI-HI program
not be allowed to terminate it in the future;
-- the method of computing
benefits be revised to exclude benefits that can accrue to individuals
from non-covered OASDI employment and only be for the period when they
became eligible - to eliminate "windfall" benefits;
-- 50% of OASDI benefits
should henceforth be taxable as ordinary income for individuals earning
$20,000 or more and married couples $25,000 or more;
-- in addition, other recommendations
concerning cost of living adjustments, the law pertaining to surviving
spouses who remarry after age 60, divorced spouses, disabled widows
and widowers, and for scheduled payroll tax increases to move up to
earlier years up to 1990 after which no further change be made with
the wage base rising and is now at a level of $97,500 in 2007 at a tax
rate of 6.2% matched by employers;
-- self-employed persons
beginning in 1984 pay the combined employer-employee rates now at 12.4%
with half considered a business expense;
-- in addition, a number
of other changes recommended that in total would penalize the public
to benefit the most well-off that was the whole idea of the scheme in
the first place.
The public was told the Commission
recommendations of 1983 were supposed to make Social Security fiscally
sound for the next 75 years. They weren't told there was no problem
to fix and the changes enacted were to transfer massive wealth from
the public to the rich. It was one part of an overall Reagan administration
scheme that included huge individual and corporate tax cuts that took
place from 1981 to 1986. The rich benefitted most with top rates dropping
from 70% in 1981 to 50% over three years and then to 28% in 1986 while
the bottom rate actually rose from 11 to 15%.
It was the first time US
income tax rates were ever reduced at the top and raised at the bottom
simultaneously. But it was far worse than that. In only a few years,
Reagan got enacted the largest ever US income tax cut (mostly for the
rich) while instituting the greatest ever increase entirely against
working Americans earning $30,000 or less.
Alan Greenspan engineered
it for him by supporting income tax cuts and doubling the payroll tax
to defray the revenue shortfall. He also recommended raiding the Social
Security Trust Fund to offset the deficit, and who'd know the difference.
His scheme helped make the US tax code hugely regressive as well as
for the first time transform a pay-as-you-go retirement and disability
benefits program into one where wage earner contributions subsidize
the rich as well as support current beneficiaries.
As a consequence, the wealth
gap widened, continued under Clinton but became unprecedented under
George W. Bush with Greenspan at it again. He supported the administration's
wealth transfer scheme to the rich and outsized corporate subsidies
with the public getting stuck with out-of-control deficits, deep social
service cuts, and a new Treasury Department report just out promising
more of the same.
It claims Social Security
faces a $13.6 trillion shortfall "over the indefinite future,"
"reforms" are needed, delaying them punishes younger workers,
and the program "can be made permanently solvent only by reducing
the present value of scheduled benefits and/or increasing the present
value of scheduled tax increases." Translation: cut benefits deeply,
raise payroll taxes, and privatize Social Security so more public wealth
goes to Wall Street and big investors.
Already the top 1% owns 40%
of global assets; the top 10% 85% of them; the top 1% in the US controls
one-third of the nation's wealth; the bottom 80% just 15.3%; and the
top 20% 84.7%. In contrast, the poorest 20% are in debt, owe more than
they own, and it's getting worse.
A generation of financial
manipulation devastated working Americans, but it's even worse than
that. Added are the effects of globalization, automation, outsourcing,
the shift from manufacturing to services, deregulation, other harmful
economic factors plus weak unions just gotten far weaker in the wake
of the UAW September membership sellout to General Motors. The tentative
agreement reached (for members to vote on) amounted to an unconditional
surrender by a corrupted leadership after a two day walkout that was
likely orchestrated in advance to cause GM the least pain. If the package
is approved as is likely, it will encourage other companies to offer
similar deals, take it or leave it. Organized labor suffered another
grievous blow, corporate giants gained, and are more empowered than
ever to win out at the expense of workers' futures.
The whole scheme was kick-started
under Ronald Reagan. Between his tax cuts for the rich and the Greenspan
Commission's orchestrated Social Security heist, working Americans lost
out in a generational wealth transfer shift now exceeding $1 trillion
annually from 90 million working class households to for-profit corporations
and the richest 1% of the population. It created an unprecedented wealth
disparity that continues to grow, shames the nation and is destroying
the bedrock middle class without which democracy can't survive.
Greenspan helped orchestrate
it with economist Ravi Batra calling his economics "Greenomics"
in his 2005 book "Greenspan's Fraud." It "turns out to
be Greedomics" advocating anti-trust laws, regulations and social
services be ended so "nothing....interfere(s) with business greed
and the pursuit of profits."
It won't affect the "Maestro."
He's getting by quite nicely on his six figure retirement income that's
just a drop in the bucket supplementing the millions he's making as
payback for the trillions he helped shift to the rich and super-rich.
They take care of their own, and Greenspan is one of them.
Stephen Lendman
lives in Chicago and can be reached at [email protected].
Also visit his blog site
at sjlendman.blogspot.com and listen to The Steve Lendman News and Information
Hour on TheMicroEffect.com Saturdays at noon US central time.
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