Posts Tagged ‘alan greenspan’
Greenspan Misapplied Free Market Theory
(My Comments on “Frontline; The Warning”)
Silver Stock Report
by Jason Hommel, October 23rd, 2009
Thanks to my wife, God bless her, I watched “Frontline: The Warning” night before last. It aired on Oct 20th, 2009. You can view it online, here:
http://www.pbs.org/wgbh/pages/frontline/warning/view/
There are 679 comments on it already.
The show is about “the warning” given by Brooksley Born, who, while acting as Chair for the CFTC (the commodities Futures Trading Commission), warned of the dangers of “black box,” “over the counter” derivatives. After she was shut up by Congress and Alan Greenspan, 6 weeks later, LTCM (Long Term Capital Management) blew up in early 2000. http://en.wikipedia.org/wiki/Long-Term_Capital_Management
Frontline shows that Greenspan was one of Ayn Rand’s top students, who believed in a philosophy that government is the problem, and that markets are the solution, and thus, self-regulating.
Frontline shows the absurd conclusion of Greenspan’s philosophy when it showed that Greenspan invited Born to a meeting, where Greenspan said something like, “I suppose you think fraud should be regulated. I don’t.” He thought the market would figure it out.
Shockingly, the film shows Greenspan painfully admitting that his philosophical views that he held for 40 years were wrong. He does not elaborate. Perhaps he’s still not exactly sure where he went wrong.
Perhaps I can help.
Being familiar with Ayn Rand’s free market views, here’s where I believe Greenspan went wrong.
Greenspan tried to apply the views of an atheist, Ayn Rand.
IN MY OPINION, Greenspan tried to let markets be free, but Greenspan did not understand the basic definition of markets, or freedom.
In my opinion, markets are where things are traded, not where people are traded by entering into contracts.
Markets are where multiple sellers compete with multiple buyers, in the open, and trade, and walk away, free to choose another trading firm tomorrow.
Black box, over the counter, derivatives, are not markets, even if they ever do trade in the open.
The spot market is like freedom. Futures contracts, and OTC derivatives, are like slavery.
In my opinion, futures contracts, like debt contracts, lead to compulsory performance, and thus slavery. And slavery is the exact opposite of freedom! That’s Greenspan’s big error, the failure to see that slavery is the opposite of freedom!
Again, as an example, allowing people the freedom to trade slaves does not promote freedom, it promotes slavery!
Allowing banks to enslave people with too much unpayable home loan debt is a fruit of that error.
Allowing banks to enslave one another so that if one topples, they all topple, is another fruit of that error.
Allowing people to enslave banks to perform what they cannot, so that they “need” bailouts, is another fruit of that error.
FRONTLINE: The Warning – Video
Hi everyone. I’ve got a really cool documentary that I’d like to share with you. It’s called The Warning.
In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation’s worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.
“I didn’t know Brooksley Born,” says former SEC Chairman Arthur Levitt, a member of President Clinton’s powerful Working Group on Financial Markets. “I was told that she was irascible, difficult, stubborn, unreasonable.” Levitt explains how the other principals of the Working Group — former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin — convinced him that Born’s attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was “clearly a mistake.”
Born’s battle behind closed doors was epic, Kirk finds. The members of the President’s Working Group vehemently opposed regulation — especially when proposed by a Washington outsider like Born.
“I walk into Brooksley’s office one day; the blood has drained from her face,” says Michael Greenberger, a former top official at the CFTC who worked closely with Born. “She’s hanging up the telephone; she says to me: ‘That was [former Assistant Treasury Secretary] Larry Summers. He says, “You’re going to cause the worst financial crisis since the end of World War II.”… [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.’”
Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. “Born faced a formidable struggle pushing for regulation at a time when the stock market was booming,” Kirk says. “Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves.”
Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.
“It’ll happen again if we don’t take the appropriate steps,” Born warns. “There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.”
Watch the documentary here:
I’d like to thank PBS for putting out this informative documentary. Please folks remember to support your local PBS station.
Take care,
Alan
