Thursday, October 15, 2009

Greenspan Comprehends The Obvious

Image credit: Afferent Input.

Apparently, it's never too late for an old "free market" economist to learn new tricks. Today, Bloomberg quotes former Federal Reserve Chairman Alan Greenspan as saying:

U.S. regulators should consider breaking up large financial institutions considered “too big to fail,” former Federal Reserve Chairman Alan Greenspan said.
“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”

Greenspan Says U.S. Should Consider Breaking Up Large Banks

This isn't the first time that Greenspan has proposed an action regarding the banks that he probably would not have implemented as the chairman of the Fed, and his successor definitely will not. It also wouldn't be the first time that the Obama Administration ignored that advice and pressed on doing something stupid instead.

Ian Welsh wrote yesterday about just how stupid the government's actions are proving to be:

While I can’t say I predicted record bonuses this year, I and many others did predict that the bailouts wouldn’t get lending going again, because it was better for banks to keep the money on hand for buyouts and leveraged games, and many of them truly are massively impaired.

In other words, that the bailouts wouldn’t do what they were sold as doing—increase lending, was predicted. Repeatedly.

Not much we can do when the people in charge don’t listen to those with track records, and deliberately hire those whose track records suck.

Perhaps Record Bonuses And No New Lending Is What Obama Wanted

Maybe the title of Ian's article really is Obama's wish, but you really have to wonder what's going on in his head. His choice of economic advisors has been as abysmal as his choice of foreign policy advisors, with the possible exception of Hillary Clinton.

Heck, when it comes to major economic trends, I have a better track record than these guys do. I was right once. In that article, by the way, I referred to myself as an "idiot savant economist" (with emphasis on idiot I suspect). Actually, I was right twice, if you count my musings here. Clearly, I'm not someone who should be advising a President, or anyone else for that matter, about the economy. Yet I could see looming problems these guys seemingly missed. There are far better people Obama could have surrounded himself with in this area. Yet, he has chosen to surround himself with the people who advise him to do the things his major contributors will like. Go figure.

If there's a ray of hope in all this, it's that Greenspan, at least, was able to overcome his prejudices about economics to reach this conclusion:

The former Fed chairman said while “just really arbitrarily breaking down organizations into various different sizes” goes against his philosophical leanings, something must be done to solve the too-big-to-fail issue.

“If you don’t neutralize that, you’re going to get a moribund group of obsolescent institutions which will be a big drain on the savings of the society,” he said.

“Failure is an integral part, a necessary part of a market system,” he said. “If you start focusing on those who should be shrinking, it undermines growing standards of living and can even bring them down.”

Greenspan Says U.S. Should Consider Breaking Up Large Banks

Which is certainly true. Businesses that are too badly run, or can't produce what their customers want, should fail. Otherwise, there's little point in having a free market.

This makes me wonder what Ben Bernanke will be writing twenty years from now about what we should have been doing. I hope he'll be writing how he finally considered the words of his predecessor, got off the phone with Goldman Sachs, and figured out what a pickle we're in. Unfortunately, Greenspan's example is instructive - he's only come out with these pronouncements after he didn't have to risk his job making them.

Let's just say I'm not holding my breath.

UPDATE: Added the link to "what a pickle". It's an article by Ian Welsh that neatly summarizes where we are, and aren't, regarding economic recovery.


Dana Hunter said...

I want to go to Greenspan, shake his hand, and say, "Thank you, Captain Obvious." Amazing how it takes the Masters of the Universe so long to reach the same conclusions we reached, oh, I dunno, about forever ago.

I do agree with you that Obama's so-called economic advisers are about the biggest bunch of crooks, charlatans, and useless gits he could've chosen. I'm hoping that after they get done taking us all down to the slippery slope to Great Depression Mark II, he finally gets a clue and fires the lot. Perhaps he can hire us. He's certainly done worse.

Cujo359 said...

I suspect you're going to be disappointed. The New York Times is reporting that a Goldman Sachs executive has just been named to head the Securities and Exchange Commission's enforcement division.

We won't just be stopping at the slope.These guys are going to look around at it, note how slick and steep the path has become, and congratulate each other on how much fun it's going to be the rest of the way.