|
Greenspan's Dark Legacy Unmasked
By Stephen Lendman
10/01/07 "ICH" -- -- 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
lendmanstephen@sbcglobal.net.
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.
Click
on "comments" below to
read or post comments
Comment
Guidelines
Be succinct, constructive and
relevant to the story.
We
encourage engaging, diverse and
meaningful commentary. Do not
include personal information such
as names, addresses, phone
numbers and emails. Comments
falling outside our guidelines
– those including personal
attacks and profanity – are
not permitted.
See our complete
Comment
Policy and
use
this link to notify us if you
have concerns about a comment.
We’ll promptly review and
remove any inappropriate
postings.
Send Page To a Friend
In accordance
with Title 17 U.S.C. Section 107, this material
is distributed without profit to those who have
expressed a prior interest in receiving the
included information for research and educational
purposes. Information Clearing House has no
affiliation whatsoever with the originator of
this article nor is Information ClearingHouse
endorsed or sponsored by the originator.)
|
