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October 25, 2008

Greenspan’s Comeuppance: Not Entirely Fair

In an historic mea culpa, former Federal Reserve Chairman Alan Greenspan schlepped up to Capitol Hill this past Thursday and confessed “shocked disbelief” at the mess affecting American (and world) capital markets. He was then grilled relentlessly for four hours by a once respectful Congressional committee seeking to fix blame for the crisis that began emerging last Summer with the unraveling of the sub-prime mortgage market.

Given that he had been Fed Chairman for over eighteen years and argued persuasively for the deregulation that allowed such “toxic” financial products to be devised and marketed, Greenspan certainly had played a key role, but he’d also had a lot of help, as (partially) revealed in an unsigned Wall Street Journal opinion piece.

Without the eager cooperation of an enormous and highly competitive Financial Services Industry, the grotesque practices revealed in the wake of the sub-prime debacle and the crash we’re now experiencing with its (as-yet) unknown consequences would not be occurring as it is. Thus it’s disingenuous to blame one man for not anticipating how corrupt an entire industry might become when left to its own devices.

On the other hand, Greenspan’s tenure also includes the Savings and Loan bail-out, the creation of modern interest rate futures that precipitated a crash in 1987, and Enron’s disastrous experiment with energy futures towards the end of the Nineties. Greenspan also seemed more willing to cater to the economic needs of the younger President Bush after 9/11 than to the elder after the Gulf War.

That’s just my opinion, of course, but it’s an opinion recently informed by a series of unlikely events that allowed me to seek answers to questions no one else has wanted to ask out loud, such as: why has such an obviously stupid drug policy been so resoundingly endorsed by the entire world for over forty years?

The apparent answer is that whenever something is banned, a potential for illegal profits is created. We humans are so competitive that when there are enough buyers to create an illegal market, the “ripple effect” of the profits generated will corrupt enough social institutions to sustain those markets indefinitely. Ironically, the single major exception to that general rule may have been the Great Depression, which is now conceded by many to have been decisive in ending America’s “Noble Experiment” with Prohibition.

Certainly, not everyone will agree with that analysis, but we may now be on the threshold of a repetition that could confirm it while answering some additional questions: why have the watchdogs of Science given NIDA a pass for both its grotesque distortions of their principles and the disastrous policy it has been defending since 1975?

The clearest message to be derived from the never-acknowledged, failures of every attempt at a national prohibition policy in history may be that opportunities for profit are exploited even more quickly and relentlessly by illegal markets than by legal ones. Recent experience also suggests that neither the business practices, nor the money generated by illegal markets can be isolated from the rest of society. Finally, a close look at history reveals that the complex governments humans have created since (separate) Agricultural Revolutions began evolving have all relied on violence to sustain their growth.

The rock upon which attempted prohibitions, unregulated “legal” markets, and our governing institutions all seem to crash eventually may well be our competitive human instincts.

Thus Walt Kelly may have been right; let’s hope that Legalization will not have a cost comparable to that of Repeal.

Doctor Tom

Posted by tjeffo at October 25, 2008 06:58 PM