“I Have Found a Flaw.”
When the history of our age is written and people have recaptured their world and their peace from sociopaths now running the world, these words of Alan Greenspan will mark the age.
Greenspan, the former Chair of the United States Federal Reserve Board, was admitting his lifelong ideology was wrong. He was admitting markets are not self-regulating, despite his economics textbooks saying so. He was admitting his Ayn Rand religion that the role of government in society should be minimal was wrong. Congratulations to him for honesty.
Stiglitz: “In 1987 the Reagan administration decided to remove Paul Volcker as chairman of the Federal Reserve Board and appoint Alan Greenspan in his place. Volcker had done what central bankers are supposed to do. On his watch, inflation had been brought down from more than 11 percent to under 4 percent. In the world of central banking, that should have earned him a grade of A+++ and assured his re-appointment. But Volcker also understood that financial markets need to be regulated. Reagan wanted someone who did not believe any such thing, and he found him in a devotee of the objectivist philosopher and free-market zealot Ayn Rand.”
“In November 1999, Congress repealed the Glass-Steagall Act—the culmination of a $300 million lobbying effort by the banking and financial-services industries, and spearheaded in Congress by Senator Phil Gramm. Glass-Steagall had long separated commercial banks (which lend money) and investment banks (which organize the sale of bonds and equities); it had been enacted in the aftermath of the Great Depression and was meant to curb the excesses of that era, including grave conflicts of interest. For instance, without separation, if a company whose shares had been issued by an investment bank, with its strong endorsement, got into trouble, wouldn’t its commercial arm, if it had one, feel pressure to lend it money, perhaps unwisely?”
“Self-regulation is preposterous, as even Alan Greenspan now concedes”
On the Bush tax cuts for rich “The cut in the tax rate on capital gains contributed to the crisis in another way. It was a decision that turned on values: those who speculated (read: gambled) and won were taxed more lightly than wage earners who simply worked hard. But more than that, the decision encouraged leveraging, because interest was tax-deductible.”
On stock options as pay for executives “they provide incentives for bad accounting: top management has every incentive to provide distorted information in order to pump up share prices.”
“The incentive structure of the rating agencies also proved perverse. Agencies such as Moody’s and Standard & Poor’s are paid by the very people they are supposed to grade. As a result, they’ve had every reason to give companies high ratings”
“The bailout package was like a massive transfusion to a patient suffering from internal bleeding”
And we are still bleeding because without Proportional Representation we don’t have democracy and we will struggle to change the system.