Greenspan: Nationalization Now
Filed under: Banking, U.S. Economy, U.S. Financial Crisis
From the Financial Times:
The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, has told the Financial Times.
In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.
”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”
- Greenspan backs bank nationalization – Financial Times
Bank Bailout: Hurts Worse When the Politicians Failing Us Inspired Hope and Promised Change
Filed under: Bailout Bill, Banking, U.S. Congress, U.S. Economy, U.S. Financial Crisis
There are so many things to dislike about the big banks, brokerages and insurance companies that brought the financial crisis upon us that one doesn’t know where to begin. So instead, let’s begin with the politicians who we elect and pay to keep us out of these messes.
They failed us last fall with the first enactment of the TARP – the $700 billion bailout – and they’re failing us again. Only now it hurts worse because the folks failing us are the ones who inspired hope and promised change.
I had a fantasy that change would mean a different approach in handling the greed and inequity which hide behind the corporate ramparts. I thought change would mean a president taking advice from the likes of Krugman and Galbraith and instead we’ve got Summers and Geithner. Where the problem with Krugman and Galbraith may be that they’re too “liberal” for a president trying to be non partisan and centrist, the answers to our problems do not lie with “the establishment,” represented by Summers and Geithner.
I’m angry, there are lots of people angry, and we don’t want to be told any reckless business is “too big to fail.”
On Tuesday, Geithner was still singing, Too Big to Fail. He didn’t tell us much, but he did tell us Washington is still willing to pull out the stops for the investment class. Congress is no better. When it comes to the financial services sector, Congress is operating in the irrelevant sector.
What we do still have a chance at here is change. Some players need to be thrown out of the game, and their survival shouldn’t have anything to do with how far their tentacles reach into the larger economy or the campaign accounts of our elected officials.
So, here’s another fantasy … Perhaps Treasury Secretary Timothy Geithner’s announcement Tuesday was only a trial baloon. Maybe he and Larry Summers were on the phone with Robert Rubin and Alan Greenspan and thought they might be able to rig the game one more time for Wall Street. Geithner may have said, “Boys, I just don’t know, I think we’ve run our string, but I’ll try for one more – but I’m telling you, if there’s blowback, this president is different than the last two …”
That’s my fantasy anyway.
Text: Alan Greenspan Testimony | Congress | October 23
Filed under: U.S. Congress, U.S. Economy, U.S. Financial Crisis
The following link is Alan Greenspan’s testimony before the House of Representatives Committee on Oversight and Government Reform in Washington today.
Click Here for Greenspan Testimony
Greenspan: Why History is not Written Contemporaneously
Filed under: Bailout Bill, U.S. Economy, U.S. Financial Crisis
Today the New York Times has what I would call the definitive mainstream media piece (so-far) regarding just what 19 years of Alan Greenspan meant as head of the Federal Reserve. You can read it here.
One cannot place the blame for today’s out-of-control financial system on person or one institution. Greenspan’s still unyielding scorn for government regulation of the financial sector and markets does invite debate. There is a conversation and ensuing action that needs to take place over such issues as transparency and governance – and what role the federal government will take. Today’s mess also invites another look at the rules which were loosened under Presidents Bill Clinton and George W. Bush affecting what businesses should be engaged in lending, securities, and insurance. Under the old system where banks lent, insurers insured and brokers made markets I don’t think we would be dealing with problems which may cost the “little people,” taxpayers, trillions.
Another point worth debating is human nature. Just last week, at a speech at Georgetown University, Greenspan concluded:
Wealth creation requires people to take risks, and thus we cannot be sure our actions to enhance our material wellbeing will succeed. But the greater our ability to trust in the people with whom we trade, that is, the more enhanced their reputation, the greater the accumulation of wealth. In a market system based on trust, reputation has a significant economic value. I am therefore distressed at how far we have let concerns for reputation slip in recent years.
Reputation and the trust it fosters have always appeared to me to be the core attributes required of competitive markets. Laws at best can prescribe only a small fraction of the day-by-day activities in the marketplace. When trust is lost, a nation’s ability to transact business is palpably undermined. In the marketplace, uncertainties created by not always truthful counterparties raise credit risk and thereby increase real interest rates and weaker economies.
During the past year, lack of trust in the validity of accounting records of banks and other financial institutions in the context of inadequate capital led to a massive hesitancy in lending to them. The result has been a freezing up of credit.
As I noted in my opening remarks, trust will eventually reemerge as investors dip hesitantly back into the marketplace. From that point, history tells us, financial and economic revival sets in. I suspect it will be sooner rather than later. In either event, human nature being what it is, revival will come. It always has in this society governed by that remarkable document we call the Constitution of the United States.
What I would say to Greenspan is that humanity is broken by nature. Take a look at history and the things people still do to one another on a daily basis all over the world. The bad actors are a minority, but common sense regulation protects the rest of us from the minority of bad actors who are apparently able to take a whole loosely or unregulated system down. When Greenspan speaks of trust as foundational to the marketplace, I can’t help but think: “Trust but verify.” If there is weak regulation, and there are billions or trillions of dollars at stake who other than the government can guarantee the “validity of accounting records of banks and other financial institutions …?”
Americans should hope that the next president is willing to take back the control Wall Street has had over federal financial and economic policy since at least the Clinton Administration. It might even be nice to have a Treasury Secretary who is not an alum of Goldman Sachs.
Everyone hailed Greenspan as “The Oracle” when his low interest rates inflated the value of the housing market and helped create the boom of the nineties and early 2000s. Now those same interest rates and his relentless fight against regulation are being derided. At some point, years from now, we’ll know the true legacy of Alan Greenspan’s Federal Reserve.
Click Here for Text of Greenspan’s Speech at Georgetown
Text: Alan Greenspan Speech at Georgetown University, October 2
An article today in the New York Times investigates the legacy of Dr. Alan Greenspan’s 19 years as chairman of the Federal Reserve. Greenspan did not comment for the article but you can read what he said in a speech last week at Georgetown University in Washington, D.C. to see if his thoughts on regulation, markets and the economy have changed.
