How the mighty have fallen. Economist Paul Krugman cuts no slack for Alan Greenspan, the former longtime chairman of the Federal Reserve.
If [Greenspan] wants to redeem himself through hard and serious reflection about how he got it so wrong, fine — and I’d be interested in listening. If he thinks he can still lecture us from his pedestal of wisdom, he’s wasting our time.
As I’ve said before, I’m appalled by Alan Greenspan’s adherence to the naive ideas of romance novelist Ayn Rand. Upon what rigorous academic research did Rand develop her philosophy? None. She was simply a fanatical anti-Communist with obsessive fantasies about her ideal leading man. That’s it. Nothing more complicated than that, except she happened to be a darn good storyteller. Yet Greenspan bought into her idea that capitalism should mean that anything goes. Only after the damage was done, did he acknowledge the failure of unregulated markets to correct themselves, and now he’s even backpedaling on that.
To recap what happened in 2008, Wall Street played fast and loose with money that came from mortgages that hadn’t been properly underwritten. This was possible because the Glass-Steagall Act of 1932 had been repealed, removing the barrier between investment and commercial banks. The bankers took their gigantic bonuses, then the mortgages dried up, the market tanked, and the financial markets collapsed. After the government bailed out the banks, the bankers kept their bonuses.
This cataclysmic worldwide mess started with the deregulation of American investment banking during the Clinton Administration, under the influence of Alan Greenspan, Bob Rubin, and Lawrence Summers.