This morning, Alan Greenspan, former chairman of the Federal Reserve, appeared as George Stephanopoulos’ guest on ABC’s “this week” Sunday morning political talk show. He had more of a “deer in the headlights” look about him than I’ve ever seen. It’s clear that he’s completely befuddled by the breadth and depth of the current financial crisis, and admitted that it’s a much worse situation than he ever faced during his tenure at the Fed. He spoke of the crisis as a “hundred-year event,” a financial crisis the likes of which may only arise every hundred years or so. He suggested that, perhaps, it’s just a natural correction in the process of globalization, a road bump in the golden highway to global nirvana.
Stephanopoulos questioned Greenspan about the imminent collapse of Lehman Bros. and whether or not the Fed should bail them out like they did for Bear Stearns, Fannie Mae and Freddie Mac. Greenspan’s response was “no,” explaining that “it’s unsustainable” for the Fed to continue bailing out these huge financial institutions. (At least he understands that much.) When asked when we could look for this financial crisis to end, Greenspan said that it would end when the housing market stabilized, perhaps sometime early next year.
At this point, I would have loved to be seated there next to George. “Mr. Greenspan, will housing prices need to fall to a level more consistent with Americans’ median income in order for this stabilization to take place?” I would have asked. “Yes, I suppose that’s true, and blah, blah, blah, blah, blah, blah …,” he would have responded.
“But with Americans’ median income stagnant or declining, as it has been for decades now, thanks to the trade deficit and loss of manufacturing jobs, then how can home prices ever stabilize?” I would have continued. I’m sure I’d have gotten a response that was heavy on optimism about the effects of fiscal stimulus, and equally heavy on denial about the role of the trade deficit.
Greenspan had one final slap in the face for American workers. When Stephanopoulos then questioned Greenspan about the domestic auto industry and whether the Fed should have a role in bailing them out too (since each of the “Big Three” are now pressing Congress for low-interest loans totaling billions), his answer was an emphatic “no!” Stephanopoulos replied, “But isn’t it unfair to bail out the big bankers and leave average folks like auto workers in the lurch?” Greenspan then rationalized that the big financial institutions are extremely critical to the economy and that “even the auto workers have a stake in seeing those companies survive.” At this point, I wanted to scream at the television, “and just where the hell do you think those auto workers got the money to deposit in those institutions?!?!”
This was so illustrative of the problem with our chief economists, a problem that continues to escalate under the administration of his former apprentice, Ben Bernanke. Banks, lenders, brokerage houses – these are the only cogs in the economic machine that matter to them. They see manufacturing as grunt work, something almost unworthy of an advanced society, a nuisance to be farmed out to the unsophisticated who have nothing better to do.
There are economists out there who are challenging the premises upon which globalization is based, but the globalization cheerleaders are a close-minded bunch. They have the upper hand and the financial backing. Until that day when their failed theories culminate in a complete financial melt-down, they may continue to hold sway. But logic will ultimately prevail and history will judge Greenspan and his ilk harshly.