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Alan Greenspan, Ayn Rand, and the ‘Credit Tsunami’

Last week the House Committee on Oversight and Government Reform skewered Dr. Alan Greenspan, the rainmaking economist, for his dominant role as former chairman of the Federal Reserve in what he called the “once-in-a-century credit tsunami”. The immoderate capitalist philosopher, Ayn Rand, with whom Greenspan had a decades-long friendship, is being called the inciter of Greenspan’s Tsunami, while Randians call her the decrier.

Ayn Rand is the mother of Objectivist philosophy. Objectivism is both an economic and ethic ideology that seems to contradict every conventionally held standard of morality; prizing selfishness over selflessness, greed over generosity, and individualism over the collective good. Followers abhor big government, even taxes, and believe that the separation of economy from government is as natural as the separation of church and state; Objectivists are atheists — though not hedonists — and hold the economy to be a sacred institution, with Rand’s philosophic works as hallowed canon.

Rand was born in 1905 Russia. Having nearly starved under the Bolsheviks after the Communists confiscated her father’s pharmacy, she subsequently begat Objectivism, which can be clearly delineated from her hatred of the communist system. In 1926 she left Russia for good for America, the land of freedom and free inquiry. The only Russian values Ms. Rand seemed to have brought to her new country were atheism, and the love of writing unending, but captivating works of literature.

She is best known for her novels The Fountainhead, and Atlas Shrugged, which begat the take-off Alan Shrugged, a biography by Jerome Tuccille which chronicles Greenspan’s life not just as the maestro mega-banker who was doted on by both Republicans and Democrats, but as a Jazz-playing Rand acolyte.

Their intellectual bond spurred rumors that he was one of her younger partners (he was 21 years her junior) in infidelity (she was married to actor Frank O’Connor for fifty years) before she became involved with Nathaniel Branden, another prominent member of the early Objectivist gang who was even younger than Alan. Tuccille does not believe that she would have been sexually attracted to him; she used to refer to him as “the undertaker” because of the dark suits, white shirts, black ties, and dark horn-rimmed glasses that marked his style as a young man. Greenspan was, according to Tuccille “an object of fun for her at the time.”

The two met through Greenspan’s first wife, the artist Joan Mitchell, in 1951. He became fascinated by Rand’s free market ideology, and began attending weekly salon meetings hosted in her apartment in 1953, which featured draft readings of Atlas Shrugged – which he later defended in a letter published in the New York Times to respond to a bad review.

Alan became a champion of a completely free market under Rand’s influence. He believed that responsible investors and business men will practice in such a way that benefits their own interests, and that regulations disturb the natural balance created by mutual self interest. He even penned several articles in the 1960′s that Rand edited that are considered brilliant Objectivist works in their own right.

One of those articles, “Gold and Economic Freedom”, was published in a 1966 issue of The Objectivist. In it in he came out strongly against the very concept of a Federal Reserve, favoring an entirely privatized banking system, writing that; “…gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.”

Rand agreed. Her death on March 6th 1982 (Greenspan’s 56th birthday) saved her from seeing him take hold of the fed five years later. According to Tucille, Greenspan’s biographer, Rand never saw it coming. In fact, when Greenspan was appointed to head Richard Nixon, then Gerald Ford’s Council of Economic Advisers in 1974, Rand called him her “man in Washington”, and attended the swearing in.

Greenspan was in attendance at Ms. Rand’s funeral in the March of 1982, but was less public about Objectivism during the time that he was the longest serving chairman of the Federal Reserve from 1987-2006. He did tell Senator Paul Sarbanes during his confirmation hearings that he “may be the only person on the Federal Reserve who believed in the gold standard. I’ve never changed that opinion, Senator.” He also told the senator that he believed in a sunset law for the Fed, “even if it means eliminating my own job.” Tucille quipped, “Ayn Rand is probably spinning in her grave screaming, ‘Check your premises, Alan.’ “

Now, three years after his retirement from the fed, he was confronted last week by Representative Henry A. Waxman (D- Ca), who is chairman of the Committee on Oversight and Government Reform, with this question:

“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis, you were advised to do so by many others, and now our whole economy is paying its price. Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

To which Greenspan humbly conceded; Yes, I’ve found a flaw.” He then clarified “…a flaw in the model that I perceived is the critical functioning structure that defines how the world works… I was shocked because I’d been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

If there was any doubt as to which ideology had somehow failed him, he said; “I made a mistake in presuming that the self-interest of organizations — specifically banks and others — were such as that they were best capable of protecting their own shareholders and their equity in the firms.” Greenspan also said that he was “very distressed” and “shocked”, and he professed; “I still do not fully understand why it happened, and obviously to the extent that I figure out where it happened and I — I will change my views. The facts change; I will change.”

The crisis in the mortgage industry and the financial meltdown, which Greenspan is being held largely responsible for, is being blamed on deregulation, which would be one step towards an Objectivist ideal. According to experts like Eric Daniels, a researcher at the Clemson Institute for the Study of Capitalism, Greenspan was not responsible for the legislation passed in the 1990s that modified decades old regulations on the insurance, commercial banking, and investment banking industries. In fact, Daniels wonders why Greenspan did not turn the tables on Waxman to say: “You’re the guys who pass the laws that exacerbated this crisis. I just ran the Federal Reserve.”
An Objectivist himself, he believes that Greenspan is being blamed for the wrong problem. Daniels faults the Congress for the Community Reinvestment Act, which compelled banks to loan money to those who were formerly deemed unacceptable credit risks — even against the bank’s own entrepreneurial interests. Daniels blames Greenspan for a different fault — the Fed’s policy of manipulating interest rates that led to artificially low rates and higher and riskier borrowing.

The Clemson Institute’s executive director, C. Bradley Thompson, also holds Greenspan partly responsible, but not Objectivism. He said of Greenspan; “He’s a serial bubblist responsible for a series a bubbles, series of ups and downs.” But then, said Thompson “anybody who is a fed chairman is going to do a lousy job.” He claims Greenspan was so seduced by political power, that he was willing to forego the ideals that he himself penned in “Gold and Economic Freedom”, which had become incorporated into Objectivist thought.

He believes that the eighty-two-year-old has long abandoned true Objectivism, which mandates total acceptance of the entire Rand oeuvre.

And in fact, under Greenspan the Federal Reserve did cut interest rates in 2001 to limit the economic damage caused by the dot-com bubble burst — an imposed limit on the market that is decidedly un-Objectivist.

With lower interest rates on loans, lending frenzied, and the quality of the borrowers, along with our economy, went spiraling down.

Not only do Thompson, and the Randian community reject blame that is increasingly being mounted on the philosopher’s legacy, but also they hold her to be the prophetess of our crises, citing her 1957 philosophic novel, Atlas Shrugged, as scripture. In the novel a character named Eugene Lawson, known as “the banker with a heart”, gave loans to anybody who came to him with need. He bankrupted his bank, and with it a whole region of the United States, because of his misguided altruism. Acts of altruism that lack self-interest are considered immoral in Randian ideology.

Objectivists have long considered the Community Reinvestment Act to be the same kind of bungle.

Asked about the Randian solution to the crises, Yaron Brook, Executive Director of the Ayn Rand Center for Individual Rights, replied that only a true laissez faire market, not the mixed market economy that Greenspan presided over, would ultimately succeed.

Ironically, the Ayn Rand Center is a non-for-profit institution.

Lori Gross is a freelance journalist based in New York. Her reporting and translation has been featured in New York magazine, and JTA newswire. Her background is in theology with additional expertise in the Arab-Israeli conflict, which she studied at Bennington College and the Hebrew University of Jerusalem. She speaks Biblical and modern Hebrew, and can be reached at LoriLGross@Gmail.com.

 

 

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2 Responses for “Alan Greenspan, Ayn Rand, and the ‘Credit Tsunami’”

  1. KHL says:

    What caused the current economic depression is lack of sound money, not sound judgment. The author obviously failed to read Greenspan’s 1966 paper. In it he states that inflation is the ultimate act of wealth confiscation. The mortgage mess could not have gotten so out of control if we were on a gold standard. There could be no FDIC if we were on a gold standard. Then presumably, depositors would actually observe the actions of the institutions that hold their funds. There wouldn’t be trillions of fiat dollars floating around the world. The gold standard would force countries to control their appetite for imports or the willingness of exporting countries to ship goods to countries that couldn’t afford them. It would greatly curtain these compassionate welfare schemes that give money to people with no expectation of value in return.

    The author has an idealized socialistic notion that somehow supporting expansive government programs that fleece the taxpayer are somehow holy whereas pursuing one’s economic interest, building wealth and creating savings is somehow a sinful pursuit. Question for her, when did Bill Gate’s do more good, when he was creating a company that employed 10′s of thousands of people or when he contributed his money to the Bill and Melinda Gates foundation?

    But under a free market economy he has the right to do either or both. And that is exactly what the statists object to most.

  2. Shiny says:

    Ayn Rand had a BA in elementary school education and history; how the heck is she the model to base our entire fiscal system? She’s not an economist, she never graduated Harvard Law and everything she learned came before 1930; and this is what Greenspan based the Federal Reserve on? On the teachings of a romance writer from the 50′s? Does Greenspan even know how to use a computer or is he creating his Mad Hatter babblings on a Selectric? It boggles the mind, it’s just – there are no words for how stupid Greenspan was to base our entire banking system on pulp fiction. What’s next, Harry Potter Magical Economics? The Department of Hobbit Security?

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