Ever since the infamous Sixties, Republicans have portrayed
themselves as hard-headed realists and Democrats as sentimental
idealists; the Daddy party vs. the Mommy party, all that. Never mind
that their idea of a manly avatar is George W. Bush. Conservative
pundits, talk radio personalities, rightwing bloggers and faculty lounge
lizards alike seemingly get a testosterone boost out of contrasting
their tough-minded worldliness to feckless liberal schemes for the
salvation of mankind. Today’s reality is almost precisely the opposite.
Contemporary Republicanism has sacrificed the reasoned self-interest of
the American people to abstract ideology at every turn. It’s bitterly
amusing watching GOP culture heroes forced to confront their failures as
the party’s day of reckoning approaches.
Last week’s ritual humiliation of former Federal Reserve chairman and
free market guru Alan Greenspan by a committee of grandstanding
congressmen would be sad if not so richly deserved. A free-market zealot
as deluded as the woolliest Marxist English professor, Greenspan
professed himself horrified by the gigantic Ponzi scheme constructed by
Wall Street mortgage lenders and investment banks. Poor fellow, he’d
evidently never paused to consider why banks need armed guards.
First appointed by (who else?) Ronald Reagan, Greenspan admitted putting
too much faith in the theoretical ability of free markets to magically
“Those of us who have looked to the self-interest of lending
institutions to protect shareholders’ equity, myself included, are in a
state of shocked disbelief,” he confessed. Evidently, the oracle
persuaded himself that bankers wearing $2,000 suits and $500 shoes were
too high-minded to steal.
Democrats reminded Greenspan that he’d had the legal authority to
prevent irresponsible lending practices but refused to use it, despite
increasingly dire warnings from economists outside the government of an
unsustainable speculative housing bubble. Perennially indignant Rep.
Henry Waxman, D-Calif., put it to him directly: “Do you feel that your
ideology pushed you to make decisions that you wish you had not made?”
“Yes, I’ve found a flaw,” Greenspan conceded. “I don’t know how
significant or permanent it is. But I’ve been very distressed by that
Yes, it’s called human nature. Leave the vault open and chances are the
cash won’t be there in the morning. A youthful devotee of the very bad
novelist Ayn Rand, whose philosophy of objectivism holds that unlimited
greed produces unlimited good, for all his intellect Greenspan is as
credulous as a child. It’s a good thing he travels mainly by limousine
because the poor fellow would be helpless in the hands of a cunning
“For a man who was once remarkably hard to decipher,” commented Steve
Goldstein of marketwatch.com, Greenspan “is now as clear as an empty
Lehman Brothers office.”
Greenspan actually believed that Wall Street investment bankers paid
multimillion-dollar performance bonuses on the basis of short-term paper
profits would restrain themselves from turning the nation’s financial
system into a gigantic rigged roulette wheel for the shareholders’ sake.
Even so, he retained enough self-respect not to play along with the
GOP’s latest poisonous alibi—that the entire sub-prime mortgage debacle
was somehow the fault of laws enacted under Jimmy Carter and Bill
Clinton forcing banks to make bad loans to poor blacks and Hispanics,
who defaulted and took Wall Street down with them.
That this destructive fable violates simple common sense—hundreds of
billions lost on ghetto real estate?—hasn’t prevented it from deluding
Republican true believers, who somehow failed to register the fact that
the GOP controlled the White House, Senate and House between 2002 and
2006 when the great majority of the damage was done.
Rather than act, Greenspan and his successors pooh-poohed warnings that
a speculative bubble was inflating, slashed interest rates to
near-record lows and did nothing to restrain investment in
mortgage-based securities whose underlying worthlessness was concealed
from buyers in an elaborate game of financial musical chairs.
And guess what. According to Newsweek business columnist Daniel Gross,
it turns out that while minority homeowners actually have very good
records of paying off mortgages, “lending money recklessly to obscenely
rich white guys, such as Richard Fuld of Lehman Bros. or Jimmy Cayne of
Bear Stearns, can be really risky.”
Nobody forced these jokers to lend out upward of $33 for every dollar
kept in reserve, an absurdly dangerous strategy. They did it because
they were making out like bandits on fees and commissions. With luck,
their multimillion-dollar bonuses would be safely ensconced in T-bills
when the music stopped.
Invited by GOP congressmen to blame government-sponsored mortgage giants
Fannie Mae and Freddie Mac for the debacle, Greenspan demurred, saying
in prepared testimony, “The evidence strongly suggests that without the
excess demand from securitizers, sub-prime mortgage originations
(undeniably the original source of the crisis) would have been far
smaller and defaults accordingly far lower.” Greenspan looked like a
fool, but he did salvage his honor.
—–––––•–––––—Free-lance columnist Gene Lyons is a Little Rock author and
recipient of the National Magazine Award.