THE WALL STREET CONSPIRACY

You’ll read this latest rant about economic orthodoxy and say “Here he goes again!” If you happened to watch ABC’s “This Week,” a regular Sunday morning fixture, you too may be wondering if you, like Alice have fallen down some hole into a world of madness.

First there were interviews with two of the “conspirators,” Larry Summers, Clinton’s economic guru, and Alan Greenspan, former economic icon and chairman of the Federal Reserve Bank. Greenspan seemed totally undaunted by the failure of the market-based system to control the economy, even though he admitted before a Senate (or was it House?) committee that he had been wrong. To me, he still misses the enormous extent to which he was wrong, he and his devotion to the libertarian rubbish of Ayn Rand, the great and misguided exponent of Social Darwinism.

The moderator did in fact, ask him about Ayn Rand. He dodged it and re-affirmed his belief in the marketplace. He said that economic progress and rescue of millions from poverty in the last 200 years, all came as a result of free competition. These guys don’t ever understand that while free competition has its virtues, it also can be predatory and destructive and can thrust millions of people into horrible poverty. Look at the ravages of the Industrial Revolution. People were saved only because legislators, far back in the early part of the 19th century of “progress” legislated against the most egregious forms of exploitation like child labour, and later against the creation of cartels.

The most significant comment made by Greenspan was in response to a question by the moderator about an OpEd piece in the New York Times by the head of an investment company in California. Michael J. Barry says he saw the hand-writing on the wall and covered his potential losses with short selling and credit default swaps. And he warned his clients too. He made a lot of money betting against sub-prime mortgages. It is a little sad that prosperity can grow from misery. But hey, that’s how the Greenspan system works.

The best was Greenspan’s response. I will reproduce it as faithfully as possible. He said "There are three groups of people. The largest group, including most economists, who thought the sub-prime lending was a good idea. The next and much smaller group bet against it and they prospered only by luck. The third, and very small group, got it right. They realized what was wrong and capitalized on it.” Then Greenspan’s coup de grace: “The man in California could only have prospered by selling short as long as the optimists were willing to buy the stock he was shorting. Without that market, he could not have made it (shorting) work.”

I have paraphrased extensively, but I got it right. Greenspan proved finally that he is married to the marketplace, with all its pimples. My point will always be: “short selling” is market manipulation. Does anyone remember that when the crisis erupted in 2008 short selling was banned, at least for a few weeks until the market could “recover?”

The post script to it all came from Robert Reich, Bill Clinton’s Secretary of Labour. He said that the three guys who know it all: Timothy Geithner, Larry Summers, and Alan Greenspan, are all guilty. It was they who promoted the deregulation that led to the crisis. It was they who allowed banks to speculate with other people’s money. It was they who enabled those same banks to exist with shamefully low reserves.

Yes, this is another rant. But until we realize that capitalism has value but not if it is devalued for profit by people for whom greed is the driving force.

We still are waiting for regulation and transparency for hedge funds and derivatives. Don’t hold your breath.