Statists left, right, and center -- whatever those terms may mean these days -- tend to employ the same word for freedoms they dislike. That word is "loopholes."
Alan Greenspan has long been referred to by writers in the mainstream media as a former "acolyte" or "disciple" of Ayn Rand. There are, even today, those who both call themselves Objectivists and profess admiration for the job Greenspan has done as Chairman of the Federal Reserve Board. It is difficult to imagine why.
From a USA Today story, published near the end of Greenspan's term of office: "In a letter released late Wednesday, Greenspan urged Congress to close a regulatory loophole that lets businesses own an Industrial Loan Corporation (ILC), a type of bank operated for specific purposes, such as processing payments."
Lovely word, loopholes, and Greenspan likes it:
The exemption allows the corporate owners of these industrial loan companies to avoid the regulatory requirements that apply to corporate owners of other types of insured banks overseen by the Federal Reserve, said Greenspan. He found this troubling.
"The character, powers and ownership of ILCs have changed materially since Congress first enacted the ILC exemption. These changes are undermining the prudential framework that Congress has carefully crafted and developed for the corporate owners of other full-service banks," Greenspan wrote.
"Importantly, these changes also threaten to remove Congress' ability to determine the direction of our nation's financial system with regard to the mixing of banking and commerce and the appropriate framework of prudential supervision," he said.
These crucial decisions should be made after careful deliberations in Congress, Greenspan said. "They should not be made through the expansion and exploitation of a loophole that is available to only one type of institution chartered in a handful of states," he wrote.
Quick questions: do you really believe that Congress has "carefully crafted" anything other than their own reelections? Do you really think that Greenspan believes this? Do you really think that he regards them as prudent, as in capable of "prudential supervision" or anything like it?
So that's how Greenspan bowed out: by asking for yet more regulation of the US economy. Let's compare that to Greenspan the acolyte, shall we? A Greenspan article, "The Assault on Integrity," was published in The Objectivist Newsletter in its August 1963 issue:
Government regulation is not an alternative means of protecting the consumer. It does not build quality into goods, or accuracy into information. Its sole "contribution" is to substitute force and fear for incentive as the "protector" of the consumer. The euphemisms fo government press releases to the contrary notwithstanding, the basis of regulation is armed force. At the bottom of the endless pile of paper work which characterizes all regulation lies a gun. What are the results?
To paraphrase Gresham's Law: bad "protection" drives out good. The attempt to protect the consumer by force undercuts the protection he gets from incentive. First, it undercuts the value of reputation by placing the reputable company on the same basis as the unknown, the newcomer, or the fly-by-nighter. It declares, in effect, that all are equally suspect and that years of evidence to the contrary do not free a man from that suspicion. Second, it grants an automatic (though, in fact, unachievable) guarantee of safety to the products of any company that complies with its artbitrarily set minimum standards. The value of a reputation rested on the fact that it was necessary for the consumers to exercise judgment in the choice of the goods and services they purchased. The government's "guarantee" undermines this necessity; it declares to the consumers, in effect, that no choice or judgment is required -- and that a company's record, its years of achievement, is irrelevant.
Which Greenspan makes more sense: the "acolyte" of 1963, or the walking, talking example of Gresham's Law of 2006? In light of what we know about markets, human behavior, law and legislation and regulation, and everything else, which Greenspan makes more sense?
Who acted first in the case of Enron and Arthur Anderson: government regulators, or investors and markets?
But don't take my word for it: financial professionals, those not sucking on the federal teat, can see Greenspan for what he's done:
Back when times were relative prosperous under Greenspan (mid-1999) – when he should have quit while he was ahead – an editorialist for The New York Times wrote an op-ed piece titled “Who Needs Gold When We Have Greenspan?” He noted, correctly, that the gold price had been declining for many years (to below $300/ounce), that both inflation and unemployment rates were low and falling, while the U.S. economy and stocks were rising robustly. All true. But the editorialist took that to mean Greenspan was far better as a “standard” for the dollar than the gold standard ever was or could be. How wrong he was. That same month (May 1999) Greenspan was hatching his plot to raise the Fed Funds rate, invert the yield curve, smash stock prices and push the U.S. into recession – to slay “irrational exuberance” and force everyone else to live by his preferred sentiments: dour pessimism and malevolence. Ignoring the message from gold, Greenspan helped destroy trillions of dollars of business wealth. And now the gold price is twice as high as it was then, while U.S. stock prices remain lower and the yield curve is again inverted – signaling yet more trouble in 2006-2007.
In a farewell cocktail party at the Fed on his last day Greenspan sanctimoniously told his colleagues: “We are in charge of the nation’s currency. The central bank, because of that, is involved in everyone’s daily lives. We are the guardians of their purchasing power.” By then Greenspan had entirely lost his honesty and integrity – if not also his mind. This was the man universally acclaimed for his astute knowledge of the data. Yet during his tenure the U.S. Consumer Price Index rose from 114 to 198. The reciprocals of these numbers provide a rough measure of the dollar’s power to purchase a representative basket of goods. Fact: the dollar’s purchasing power declined 43% on Greenspan’s watch. No such thing ever happened under the gold standard. Why did he never mention this? No central banker – least of all Alan Greenspan – has ever served as the “guardian” of the purchasing power of the currency he issues. He’s the proverbial fox guarding the henhouse.
Only gold can preserve a currency’s value. Greenspan’s track record at the Fed was nowhere near as good as gold’s – because the dollar itself wasn’t as good as gold under Greenspan. He made sure of that. He refused to foreswear policy arbitrariness; instead, he reveled in it – and in the encomiums. That he never lifted a finger to restore a gold-based dollar, let alone a gold-based monetary policy – despite knowledge of its virtues – was his main vice. The question we should be asking today is the reverse of the one posed by The New York Times editorialist: “Who Needs Greenspan (or Bernanke) When We have Gold?”
I urge you to read all of Salsman's piece, and to follow the links he provides. He provides real perspective on the man who once wrote an article called "Gold and Economic Freedom (The Objectivist, July 1966)." Pay attention to a comment such as, "The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves," and then remember Salsman's statement that Chairman Gresham Greenspan "never lifted a finger to restore a gold-based dollar, let alone a gold-based monetary policy." He knew what he was doing.
Let's hear from Acolyte Greenspan (vintage 1963) one more time:
The hallmark of collectivists is their deep-rooted distrust of freedom and of the free-market processes; but it is their advocacy of so-called "consumer protection" that exposes the nature of their basic premises with particular clarity. By preferring force and fear to incentive and reward as a means of human motivation, they confess their view of man as a mindless brute functioning on the range of the moment, whose actual self-nterest lies in "flying-by-night" and making "quick kills." They confess their ignorance of the role of intelligence in the production process, of the wide intellectual context and long-range vision required to maintain a modern industry. They confess their inability to grasp the crucial importance of the moral values which are the motive power of capitalism. Capitalism is based on self-interest and self-esteem; it holds integrity and trustworthiness as cardinal virtues and makes them pay off by means of virtues, not of vices. It is this superlatively moral system that the welfare statists propose to improve upon by means of preventive law, snooping bureaucrats, and the chronic goad of fear.
That, ladies and gentlemen, is evidence of serious corruption and decline: what the Greenspan of the 1960s accurately pegged as "force and fear," the Greenspan of 2006 lauds as "prudence."
Better get to work plugging those loopholes.
Posted by Craig Ceely at February 19, 2006 07:09 PM