There were a couple of things that occurred to me while watching “The Warning” last night, the Frontline documentary that recounted the 1998 battle between Brooksley Born, then head of the Commodities Futures Trading Commission, and Robert Rubin, Alan Greenspan and Lawrence Summers — the so-called “Committee to Save the World” — over the regulation of the derivatives market. Turns out Born was the one trying to save the world, the others were trying to save somebody else’s bottom line.
Anyhow, beyond thinking, I wonder how the Yankess are doing, here are the three key takeaways that occurred to me during the one-hour special:
1. This was a 100% man-made crisis.
From the near-failure of Long-Term Capital Management in 1998 onward, there were key developments that could have turned this Great Recession into either a merely typical downturn, or no downturn at all even
Bailing out LTCM set the “too big to fail” trade in motion. Not regulating derivatives created a Wild West outpost on Wall Street. Cutting interest rates to 1% to fight the ‘01 recession sparked the disastrous housing boom. Rescinding the cap ratios on Wall Street in 2004 was the last stick of dynamite in the box.
At every step, people had the chance to make a right decision, and didn’t. Born tried to do the right thing, and was hogtied and railroaded out of Washington. And that leads me to my second point.
2. Good people don’t get very far in Washington.
I’ve never worked in Washington, I’ve never covered Washington. It’s only my perception that it is a place where you play ball, or you get shut out. By any measure, Born was wildly successful. Head of her class at Stanford Law. Ran her own shop in DC, the CFTC. She made her way through Washington until she butted heads with the big boys. She wouldn’t play ball, and in Washington, that’s the kiss of death, even if you’re right.
3. Ayn Rand was a bad writer, and a horrible philosopher.
If one good thing’s come out of this whole disaster, it’s that Rand’s goofy, sophomoric philosophy has been exposed as the half-baked, ill-conceived narcissistic babble it is. I always thought “The Fountainhead” read like a bad soap opera. It was Rand’s prize pupil, Alan Greenspan, who made Rand’s philosophy the driving force behind the train wreck that is this recession.
There’s nothing wrong with Rand’s celebration of the individual. The light bulb wasn’t invented by a committee. But this thing of hers where she lifts the individual above society to the point where the former owes nothing to the latter is absurd, and in practice — as we’ve since seen — leads to ruin. And it’s just dumb. Without a safe, secure society in which to operate, we’d all just be more chimpanzees out in the wild, scrounging for berries, know what I mean?
Oh, and derivatives, as of this writing, remain unregulated.
Addendum: I negleted to mention the 1999 repeal of the Glass-Steagall Act, the Depression-era law that kept investment and commercial banks separate, as a major contributing factor to the credit crisis. It was.
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October 21, 2009
Ok………I’ll be the first.
If Greenspan really was an “adherent” of Rand………..LTCM would’ve collapsed. The Federal Funds rate would never have gone below 4%.
How can these actions NOT be viewed as government interference? Its plain as day.
Alan Greenspan was corrupted by the Howard Fineman Washington Group Think that prevailed during the day. Greenspan became the embodiment of central planning. And we lauded like Stalin’s son. The Maestro? How is that not an ode to central planning?