- After retiring as the Federal Reserve's second longest
ever serving chairman, Alan Greenspan is now cashing in big late in life
at age 81. He chaired the Fed's Board of Governors from the time he was
appointed in August, 1987 to when he stepped down January 31, 2006 amidst
a hail of ill-deserved praise for his stewardship during good and perilous
times. USA Today noted "the onetime jazz band musician went out on
a high note." The Wall Street Journal said "his economic legacy
(rests on results) and seems secure." The Washington Post cited his
"nearly mythical status."
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- Stanford Washington Research Group chief strategist Greg
Valliere called him a "giant," and Bob Woodward called him "Maestro"
in his cloying hagiography (now priced $1.99 used on Alibris and $2.19
on Amazon) that was published in 2000 as the Greenspan-built house of cards
was collapsing. The book was an adoring tribute to a man he called a symbol
of American economic preeminence, who the Financial Times also praised
as "An Activist Unafraid to Depart From the Rule" - by taking
from the public and giving to the rich.
-
- Others joined the chorus, too, lauding his steady, disciplined
hand on the monetary steering wheel, his success keeping inflation and
unemployment low, and his having represented the embodiment of prosperity
in compiling a record of achievement his successor will be hard-pressed
to match.
-
- In 2004, William Greider in The Nation magazine had a
different view. He's the author of "Secrets of the Temple" on
"how the Federal Reserve runs the country." He wrote Greenspan
"ranks among the most duplicitous figures to serve in modern American
government (who used) his exalted status as economic wizard (to) regularly
corrupt the political dialogue by sowing outrageously false impressions
among gullible members of Congress and adoring financial reporters."
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- They were front and center in the New York Times for
the man who "steer(ed) the economy through multiple calamities and
ultimately....one of the longest economic booms in history....(He earned
his bona fides) weather(ing) the Black Monday stock crash of 1987 (and
in 18 and a half years in office) achieved more celebrity than most rock
stars" and may now approach them in earnings.
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- The new book of his memoirs "The Age of Turbulence"
is just out for which his reported advance exceeded $8.5 million (second
only to Bill Clinton's $10 for his memoirs) plus additional royalties if
sales exceed 1.9 million copies. They may given the amount of high-impact
publicity it and he are getting nonstop. And that's not all. He's in great
demand on the lecture circuit at six figure fees, has his own consulting
firm, Greenspan Associates LLC, and his lawyer, Robert Barnett says "virtually
every major investment-banking firm" in the world wants to hire him
for his rainmaking connections.
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- They have value, not his market advice, best avoided
for the man who engineered the largest ever stock market bubble and bust
in history through incompetence, timidity, dereliction of duty, and subservience
to the capital interests he represented at the expense of the greater good
and a sustained sound economy he didn't worry about nor did Wall Street.
-
- For firms on the Street and big banks, he could do no
wrong and was above reproach for letting them cash in big and then get
plenty of advance warning when to exit. Most ordinary investors weren't
so fortunate. They're not insiders and were caught flat-footed by advice
from market pundit fraudsters and the most influential one of all in the
Fed Chairman. Just weeks before the market peak in January, 2000, he claimed
"the American economy was experiencing a once-in-a-century acceleration
of innovation, which propelled forward productivity, output, corporate
profits and stock prices at a pace not seen in generations, if ever."
-
- It was hype and nonsense and on a par with famed economist
and professor Irving Fisher's remarks just before the 1929 stock market
crash and Great Depression when he claimed economic fundamentals in the
country were strong, stocks undervalued, and an unending period of prosperity
lay ahead. It took a world war a decade later, not market magic, for them
to arrive, but before it did Fisher kept insisting in the early 1930s recovery
was just around the corner. It's the same way Wall Street touts operate
today on gullible investors who even after they've been had are easy prey
again for the next con.
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- And they're really in trouble when it comes from the
"Maestro," who at the height of the stock market bubble said:
"Lofty equity prices have reduced the cost of capital. The result
has been a veritable explosion of spending on high-tech equipment...And
I see nothing to suggest that these opportunities will peter out anytime
soon....Indeed many argue that the pace of innovation will continue to
quicken....to exploit the still largely untapped potential for e-commerce,
especially the business-to-business arena."
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- One week later, the Nasdaq peaked at 5048 and crashed
to a low of 1114 on October 9, 2002. It lost 78% of its value, the S&P
500 stock index dropped 49%, and retail investors lost out while Greenspan
was busy engineering another bubble with a tsunami of easy money for Wall
Street and big investors. It's now unwinding as he gets a big payday for
his memoirs and a chance to rewrite history. He aims to raise himself to
sainthood and at the same time distance himself from the very costly policies
he implemented on top of trillions he helped scam in the greatest modern
era wealth transfer from the public to the rich. More on that below.
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- Greenspan's Background and Tenure as Federal Reserve
Chairman
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- Alan Greenspan grew up in New York, got his B.A. and
M.A. in economics from New York University and later was awarded a Ph.D.
in economics from Columbia without completing a dissertation the degree
usually requires. In a highly unusual move, Columbia made an exception
in his case.
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- Early on, he became enamored with free market ideologue
Ayn Rand, wrote for her newsletters and authored three essays for her book
"Capitalism: The Unknown Ideal." It expressed her views on capitalism's
"moral aspects" and her attempt (with Greenspan's help) to rescue
it from its "alleged champions who are responsible for the fact that
capitalism is being destroyed without a hearing (or) trial, without any
public knowledge of its principles, its nature, its history, or its moral
meaning."
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- That was in 1966 when Rand, a staunch libertarian as
is Greenspan, believed fundamentalist capitalism was being battered by
a flood of altruism in the wake of New Deal and Great Society programs
she (and Greenspan) abhorred. She defended big business, made excuses for
its wars, and denounced the student rebellion at the time and the evils
of altruism. Greenspan concurred, maintained a 20 year association with
Rand (who died in 1982), and never looked back.
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- From 1948 until his 1987 Federal Reserve appointment,
he served as Richard Nixon's domestic policy coordinator in his 1968 nomination
campaign and later as Gerald Ford's Council of Economic Advisers Chairman.
He also headed the economic consulting firm, Townsend-Greenspan & Company,
from 1955 - 1987. Its forecasting record was so poor it was about to be
liquidated when he left to join the Fed. A former competitor, Pierre Renfret,
noted: "When Greenspan closed down his economic consulting business
to (become Fed Chairman) he did so because he had no clients left and the
business was going under (and we found) out he had none (of his employees
left)." That made him Reagan's perfect Fed Chairman choice, and Renfret
added it was Greenspan's failure in private business that got him into
government service in the first place.
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- He wouldn't disappoint as Wall Street's man from the
start. He bailed it out in 1987 after the disastrous October black Monday.
It was the same way he did in it later in 1998 following Long Term Capital
Management's collapse and again after the dot-com bubble burst. It was
by his favorite monetary medicine guaranteed to work when taken as directed
- floods of easy money followed by still more until the patient is healed,
unmindful that the cure may be worse than the disease. No matter, it's
a new Chairman's problem with Greenspan claiming no culpability for his
18 and a half year tenure of misdeeds, subservience to capital, and contempt
for the public interest.
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- His new book claims the opposite. It's a breathtaking
example of historical revisionism that's become standard practice for the
man Sydney Morning News' Political and International Editor Peter Hartcher
calls "Bubble Man" in his new book by that title. In it, he quotes
Bob Woodward saying Greenspan "believed he had done all he could"
to contain over-exuberance when, in fact, he let it get out of control.
He now claims:
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- -- he didn't support George Bush's regressive tax cuts
for the rich (that helped create huge budget deficits). In fact, he did,
and in 2001 wholeheartedly endorsed this centerpiece of the administration's
economic policy in his testimony before the Senate Budget Committee. At
the time, he cited the economic slowdown saying: "Should current economic
weakness spread....having a tax cut....may....do noticeable good."
-
- -- he's "saddened (in his book) that it is politically
inconvenient to acknowledge what everyone knows: the Iraq war is largely
about oil." In his typical obfuscating way to confuse and have things
both ways, he tried clarifying his position in a September interview claiming:
"I was not saying that that's the administration's motive. I'm just
saying that if somebody asked me, are we fortunate in taking out Saddam?
I would say it was essential." He failed to say he supported the Bush
administration agenda across the board, including the Afghanistan and Iraq
wars, with reasons given at the time he's now distancing himself from.
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- -- no responsibility for the 2000 stock market bubble.
He falsely claimed he never saw it coming while providing generous amounts
of liquidity to fuel it. After citing the market's "irrational exuberance"
in a December, 1996 speech, he failed to curb it and could have by raising
interest rates, margin requirements, and jawboning investors to cool an
overheated market to restore stability for long-term economic growth. Instead,
he did nothing. He failed to take away the punch bowl, created a bubble,
and allowed it to burst causing investors (mostly retail ones) to lose
trillions.
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- -- no responsibility for the housing and bond bubbles
he created by cutting interest rates aggressively to 1% and flooding the
markets with liquidity. As things got out of hand, timely responsible action
could have avoided the summer, 2007 credit crisis. Again, he allowed a
bad situation to get worse to keep the party going and allow lenders to
profit hugely. In the unprecedented run-up in house prices to an $8 trillion
wealth bubble, he derided critics claiming anything was wrong. He even
encouraged homebuyers to take out adjustable rate mortgages, approved of
very risky no down payment purchases, created the subprime mess as a consequence,
and isn't around to address buyers faced with $1.2 trillion in mortgage
resets later this year and next that will cause many thousands of painful
foreclosures.
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- Affected homeowners won't likely be cheered by his speech-making
bunkum that bubble level asset prices proved his monetary policies worked
by getting investors to demand lower risk premiums. They also won't be
calmed by his arrogant claim that it's "simply not realistic"
to expect the Fed to identify and deflate asset bubbles when it's real
role is to champion flexible and unregulated markets leaving everyone unprotected
on our own.
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- -- no responsibility for allowing outstanding US debt
to more than triple to around $40 trillion on his watch that one analyst
calls his "most conspicuous achievement." Those having to pay
it off won't thank him.
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- Greenspan's Role in the Greatest Modern Era Wealth Transfer
from the Public to the Rich
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- Greenspan was a one-man wrecking crew years before he
became Fed Chairman, and his earlier role likely sealed the job for him
as a man the power elite could trust. He earned his stripes and then some
for his role in charge of the National Commission on Social Security Reform
(called the Greenspan Commission). He was appointed by Ronald Reagan to
chair it in 1981 to study and recommend actions to deal with "the
short-term financing crisis that Social Security faced....(with claims
the) Old-Age and Survivors Insurance Trust Fund would run out of money....as
early as August, 1983."
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- There was just one problem. It was a hoax, but who'd
know as the dominant media stayed silent. They let the Commission do its
work that would end up transfering trillions of public dollars to the rich.
It represents one of the greatest ever heists in plain sight, still ongoing
and greater than ever, with no one crying foul to stop it. The Commission
issued its report in January, 1983, and Congress used it as the basis for
the 1983 Social Security Amendments to "resolve short-term financing
problem(s) and (make) many other significant changes in Social Security
law" with the public none the wiser it was a scam harming them.
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- The Commission recommended:
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- -- Social Security remain government funded and not become
a voluntary program (that would have killed it);
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- -- $150 - 200 billion in either additional income or
decreased outgo be provided the Old Age, Survivors, and Disability Insurance
(OASDI) Trust Funds in calendar years 1983 - 89;
-
- -- the actuarial imbalance for the 75 year Trust Funds
valuation period of an average 1.80% of taxable payroll be resolved;
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- -- a "consensus package" to fix the problem
by raising payroll taxes on incomes but exempting the rich beyond a maximum
level taxed. Also a gradual increase in the retirement age and various
other possible short and longer range options for consideration. The result
today is low income earners pay more in payroll than income tax. For bottom
level earners, the burden is especially onerous. They pay no income tax
but aren't exempt from 6.2% of their wages going for Social Security and
Medicare.
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- -- coverage under OASDI be extended on a mandatory, basis
as of January 1, 1984, to all newly hired civilian employees of the federal
government and all employees of nonprofit organizations;
-
- -- state and local governments that elected coverage
for their employees under the OASDI-HI program not be allowed to terminate
it in the future;
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- -- the method of computing benefits be revised to exclude
benefits that can accrue to individuals from non-covered OASDI employment
and only be for the period when they became eligible - to eliminate "windfall"
benefits;
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- -- 50% of OASDI benefits should henceforth be taxable
as ordinary income for individuals earning $20,000 or more and married
couples $25,000 or more;
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- -- in addition, other recommendations concerning cost
of living adjustments, the law pertaining to surviving spouses who remarry
after age 60, divorced spouses, disabled widows and widowers, and for scheduled
payroll tax increases to move up to earlier years up to 1990 after which
no further change be made with the wage base rising and is now at a level
of $97,500 in 2007 at a tax rate of 6.2% matched by employers;
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- -- self-employed persons beginning in 1984 pay the combined
employer-employee rates now at 12.4% with half considered a business expense;
-
- -- in addition, a number of other changes recommended
that in total would penalize the public to benefit the most well-off that
was the whole idea of the scheme in the first place.
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- The public was told the Commission recommendations of
1983 were supposed to make Social Security fiscally sound for the next
75 years. They weren't told there was no problem to fix and the changes
enacted were to transfer massive wealth from the public to the rich. It
was one part of an overall Reagan administration scheme that included huge
individual and corporate tax cuts that took place from 1981 to 1986. The
rich benefitted most with top rates dropping from 70% in 1981 to 50% over
three years and then to 28% in 1986 while the bottom rate actually rose
from 11 to 15%.
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- It was the first time US income tax rates were ever reduced
at the top and raised at the bottom simultaneously. But it was far worse
than that. In only a few years, Reagan got enacted the largest ever US
income tax cut (mostly for the rich) while instituting the greatest ever
increase entirely against working Americans earning $30,000 or less.
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- Alan Greenspan engineered it for him by supporting income
tax cuts and doubling the payroll tax to defray the revenue shortfall.
He also recommended raiding the Social Security Trust Fund to offset the
deficit, and who'd know the difference. His scheme helped make the US tax
code hugely regressive as well as for the first time transform a pay-as-you-go
retirement and disability benefits program into one where wage earner contributions
subsidize the rich as well as support current beneficiaries.
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- As a consequence, the wealth gap widened, continued under
Clinton but became unprecedented under George W. Bush with Greenspan at
it again. He supported the administration's wealth transfer scheme to the
rich and outsized corporate subsidies with the public getting stuck with
out-of-control deficits, deep social service cuts, and a new Treasury Department
report just out promising more of the same.
-
- It claims Social Security faces a $13.6 trillion shortfall
"over the indefinite future," "reforms" are needed,
delaying them punishes younger workers, and the program "can be made
permanently solvent only by reducing the present value of scheduled benefits
and/or increasing the present value of scheduled tax increases." Translation:
cut benefits deeply, raise payroll taxes, and privatize Social Security
so more public wealth goes to Wall Street and big investors.
-
- Already the top 1% owns 40% of global assets; the top
10% 85% of them; the top 1% in the US controls one-third of the nation's
wealth; the bottom 80% just 15.3%; and the top 20% 84.7%. In contrast,
the poorest 20% are in debt, owe more than they own, and it's getting worse.
-
- A generation of financial manipulation devastated working
Americans, but it's even worse than that. Added are the effects of globalization,
automation, outsourcing, the shift from manufacturing to services, deregulation,
other harmful economic factors plus weak unions just gotten far weaker
in the wake of the UAW September membership sellout to General Motors.
The tentative agreement reached (for members to vote on) amounted to an
unconditional surrender by a corrupted leadership after a two day walkout
that was likely orchestrated in advance to cause GM the least pain. If
the package is approved as is likely, it will encourage other companies
to offer similar deals, take it or leave it. Organized labor suffered
another grievous blow, corporate giants gained, and are more empowered
than ever to win out at the expense of workers' futures.
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- The whole scheme was kick-started under Ronald Reagan.
Between his tax cuts for the rich and the Greenspan Commission's orchestrated
Social Security heist, working Americans lost out in a generational wealth
transfer shift now exceeding $1 trillion annually from 90 million working
class households to for-profit corporations and the richest 1% of the population.
It created an unprecedented wealth disparity that continues to grow, shames
the nation and is destroying the bedrock middle class without which democracy
can't survive.
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- Greenspan helped orchestrate it with economist Ravi Batra
calling his economics "Greenomics" in his 2005 book "Greenspan's
Fraud." It "turns out to be Greedomics" advocating anti-trust
laws, regulations and social services be ended so "nothing....interfere(s)
with business greed and the pursuit of profits."
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- It won't affect the "Maestro." He's getting
by quite nicely on his six figure retirement income that's just a drop
in the bucket supplementing the millions he's making as payback for the
trillions he helped shift to the rich and super-rich. They take care of
their own, and Greenspan is one of them.
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- Stephen Lendman lives in Chicago and can be reached at
lendmanstephen@sbcglobal.net.
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- Also visit his blog site at sjlendman.blogspot.com and
listen to The Steve Lendman News and Information Hour on TheMicroEffect.com
Saturdays at noon US central time.
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