No, Our Great Recession Was Not A Mistake. Stop Saying That.

Alan Greenspan, the former Federal Reserve chairman who was as responsible as anybody for the economic crisis which has cost millions of average Americans their jobs, and millions more their life savings, is now trying to convince whoever is still listening that the crisis was not a repudiation of his ideology:

TAPPER:  You'll be testifying about the financial crisis on 
Wednesday before the Financial Crisis Inquiry Commission.  When you 
testified before Congress in October, you said that you finally saw a 
flaw in -- in the way that you looked at markets, that markets cannot 
necessarily be trusted to completely police themselves.

 But isn't it -- isn't it more than a flaw?  Isn't it an indictment 
of Ayn Rand and the view that laissez-faire capitalism can be expected 
to function properly, that markets can be trusted to police themselves?

GREENSPAN:..So it's not the principle of competitive markets which really has no 
alternative which works.  It is a strict application -- as I presented 
in a Brookings paper fairly recently on a somewhat technical area, the 
major mistake was assuming what the nature of risk would be.  And the 
reason it was missed is we have had no experience of the type of risks 
that arose following the default of Lehman Brothers in September 2008.

This is total horseshit. For one thing, the amounts of risk were not missed. People were pointing them out over and over again during the years leading up to the crisis. For another, this exact same thing caused the Great Depression, and has been repeated over and over in every banana republic in the world. It's not some mystery or unintended consequence.

There was nothing accidental about this crisis. Purely free markets are designed to result in large disparities in wealth. And, in fact, this wasn't a disaster for the people who were responsible. The major financial players (big banks and hedge funds, particularly) made out like bandits. Or, more to the point, the executives and traders of these firms did. They had every expectation that the government would transfer huge amounts of taxpayer money to the banks, and that once they had it they could pay themselves bonuses as they liked. And no one would hold them accountable. In other words, they're keeping your money. They'll be on an island somewhere while the rest of us spend a generation paying the bill.

This is how a free market works. Without political restraint in the form of an educated, involved electorate, the players in a free market will begin to accumulate wealth and power. When they do, they will consolidate that power and use it to control the political system in the absence of any meaningful voter interest (and voters know nothing about the complex ways in which these players rig the game until it's too late, if even then.)

There is nothing anti-free market about big banks using their immense power and influence to control government. In a purely free market, anything goes. It's survival of the fittest, after all, right? And the firms which are best suited to survive in a free market system are not those that make the best product, or provide the best service. No, the ones who know how to write the laws and make government an accomplice to the theft of trillions from poor and working-class Americans are the ones who will flourish in a free-market system.

Greenspan: That's the critical mistake.  And I made it.  Everybody that I know who works in this business made it.  And it means that basically we have to work our way back to understanding what went on.  And as I argue, what we need is far more required capital for financial institutions than we've had.

What was the critical mistake? That he was wrong about the correct level of capital reserves? Does he not recognize that in a true Randian free-market economy, there would be no capital reserves? Does he not realize that the position of great power he once held, that of Chairman of the Federal Reserve Board, would not even exist in a Randian free-market economy?

Here's the deal, Greenspan. If you want a "free market", then try proposing that we abolish the Federal Reserve, the SEC, the FDIC, the FBI, every single law every written about fraud, and basically the entire system of business and civil law that Western economies have devised over the past few centuries. See how that flies.

And when even your most sycophantic, Randian cultists recoil at the specter of creating a lawless Somalian-style free-for-all, maybe you'll admit that you do need a few laws here and there.

And then maybe, just maybe, you'll admit that the fight isn't over whether we have laws, but over who will be the ones writing them for their own benefit.

For the last 30 years, the financial sector has been writing those laws, and telling all Americans that they are for the good of all the country.

That lie is getting a lot harder to tell these days, isn't?