What’s it like spending two years doing thankless work that, in the end, is going to be ignored by the very people who asked for your services? The members of the Financial Crisis Inquiry Commission have just found out. Their 662 page report is sinking rapidly into oblivion in official Washington, and is now destined to be of interest only to historians. This was fully predictable. The Commission was given a charter by Congress to tell us who, what, when, and where about the financial crisis, but they were not allowed to explain why. To understand why this crisis occurred would be stepping on way too many powerful toes in Washington, and for this reason the Commission was told not to make any policy recommendations to Congress that would help prevent such a crisis from occurring again.
Though toothless and hobbled by Congress, the Commission has issued a remarkable report, at least by Washington standards. The report reads like the work of an investigative reporter, filled with interesting anecdotes selected from hundreds of hours of interviews with financial experts and market participants. The chapters are organized chronologically from the start of the housing boom to its collapse. Hardly anybody comes out of this report looking good, but of the many people who have reason to hang their head in shame, none appear quite as damaged as Alan Greenspan. He and the Federal Reserve are fingered by the Commission for failure to regulate the banks and other players in the housing market.
The central bank operated a regulatory regime called ”œFed Lite”, providing little regulatory oversight for the banks, and no oversight for the shadow banking system that blew up under the weight of excessive debt and sparse capital. Fed Lite was founded on Alan Greenspan’s near-religious belief that the markets always weed out inefficient players and excesses, and the Fed’s job therefore is to stay out of the way of the banks they are supposed to regulate. Greenspan later admitted to the Commission that he might have been a bit wrong about the wonderful self-correcting mechanism of the markets. He also admitted that he was out of his depth whenever the staff came to talk to him about technical matters like mortgages, the housing markets, derivatives such as CDOs, and so on.
This was the man who was dubbed ”œThe Maestro” by Bob Woodward, but apparently nearly twenty years of hands-on experience running the central bank was not enough to educate him sufficiently to understand the housing market, much less detect a bubble in the making. Why was someone like him given such a position of power? The Commission is unable to explain this to us, and to do so would require going much further back in time than the housing bubble ”“ in fact back to the 1950s, when Alan Greenspan sat at the side of Ayn Rand, as an Apostle of Selfishness and a prized member of her cult of Objectivists.
In his professional life Alan Greenspan has never talked about his days with Ayn Rand, and curiously no one in Washington has bothered to ask him publicly about how much of her philosophy he believes. As Fed Chairman, if Greenspan was a maestro of anything, it was playing Washington politics, and he was always wise enough never to tip his hand on policy matters until he had to. By the time the Fed was ready to implement Fed Lite, the mood in Washington had already shifted in favor of the Republican campaign to reduce government regulation wherever possible. This meant not only allowing market operators to function unfettered, it meant giving the wolves access to the henhouse. Insurance and oil industry executives were allowed in to Congressional staff meetings to help write laws governing their industries. Bankers were appointed to top positions at the Treasury and the Fed. As far as Wall Street was concerned, the traditional balance between Greed and Fear was upended: Fear was banished and Greed was allowed to run rampant once bankers were given access to unlimited taxpayer money in the form of bailouts.
All of this was quite congenial to Alan Greenspan, the inventor of the ”œGreenspan put” ”“ which was a phrase created by the market to characterize the promise by the Fed that any serious losses in the market could always be ”œput back” to the government. Time and again Greenspan oversaw one bank bailout after another, and then expanded the franchise to the hedge fund industry when he bailed out LTCM in 1998. By the time he retired from the Fed, the financial industry had become so large that the Greenspan put had become institutionalized, and is now referred to as the Bernanke put. The job of Chairman of the Federal Reserve apparently carries with it the promise to forever protect the markets from their mistakes.
This must be quite satisfying to Ayn Rand followers. In their mythology, only Worthy Individuals are allowed to succeed in life, by taking what they want from others, and fighting off the little people and bothersome bureaucrats who obstruct them because they are envious of anyone who succeeds. Alan Greenspan must view himself and the eminent people he associates with as the Worthy few, entitled to their wealth and position of power. As a Republican, Greenspan has had no problems with the evolution of his party into the protector of the privileged few ”“ the Lucky Duckies who control nearly 90% of the wealth in America, and feel entitled to raid the Treasury whenever they need to cover up for their mistakes.
This is the problem the Commission has had in doing its work. It is operating in a political and social environment in Washington that for decades has glorified greed and selfishness, and so accepted are these qualities that an alternative universe where government helps the average person rather than just the wealthy person is simply too hard for people in Washington to imagine. The best the Commission can do is say ”œAlan Greenspan should have done this, and he shouldn’t have done that.” It cannot say that there is something deeply corrupting in the way politicians of both parties think and act in Washington.
That is also why this Commission is so very different from the Pecora Commission of the 1930s, which took as its job the exposure of corruption and fraud at the very highest levels of business and government. The evidence of corruption and fraud in the housing bubble and during the credit crisis is mounting every day, but no one of responsibility or power has been called to account. The Commission has apparently identified a few low level functionaries for the attention of the Justice Department, but it is unlikely that someone like Angelo Mozilo of Countrywide is ever going to wind up in court on fraud charges. There is no moral outrage in Washington anymore, because there is simply no telling whose head would not fall under the guillotine if the true extent of fraud and corruption were revealed.
The American people don’t have much moral outrage either. For the longest time they bought into the Greed is Good philosophy as long as the stock market was going up, and the housing bubble was in the ascendant. Once both of these financial props collapsed, misery spread everywhere, but it wasn’t the misery experienced by our grandfathers, who lost all their wealth in the 1930s when the banks collapsed completely. Most Americans are holding on to some of their wealth, and 80% of them have full time jobs, even if the work is stressful and the benefits are disappearing. Unemployment checks are being extended for another year, payroll taxes are scheduled to be cut in 2011, and Ben Bernanke has spent over half a trillion dollars generating another stock market bubble. The wealthy are spending money, which helps the retail sales numbers look good, and the Fed assures us that inflation is not a problem, because the Fed excludes the price of food and energy in its calculations of inflation.
Of what use, then, is a Commission that explains why things really happen the way they do? No one wants to hear it ”“ not the Congress, not the White House, not Republicans, Democrats, nor independents. No one wants to hear that the American Dream ”“ which use to say that anyone could succeed in America with hard work ”“ has been polluted by a wholly different American Dream, which now says you can succeed with the right connections and you can take what you want without any consequences. We have brought the philosophy of Selfishness to its logical conclusion, which has left us with a society of individuals who are isolated from each other, who have been stripped of any sense of community, and who have been taught to expect that government will be of no help to you unless your are in a position of privilege and power.
What America really needs is a Commission of Truth, that would outline how Selfishness became triumphant, how it has devastated our country, and what we as a community and as a nation must do about this. A Commission of Truth, however, needs to have an audience willing to listen to the truth, and such an audience does not exist in America. At least not yet ”“ not until Americans have experienced the full, bitter fruits that a lifetime of Selfishness can produce.