February 19th, 2009
02:17 PM ET

Greenspan's hidden agenda

[cnn-photo-caption image=http://i.l.cnn.net/money/2008/02/15/news/economy/greenspan/alan_greenspan_cera.03.jpg width=292 height=320]
Paul Kedrosky
The Daily Beast

The former Fed chief's plug for nationalizing banks is vertigo-inducing. It's also a conflict of interest—and a sign of just how far he has fallen.

There is something sad about watching former Fed Chairman Alan Greenspan lose most of the intellectual underpinnings of his life. A few months ago he famously conceded that there was a "flaw" in the economic model with which he thinks about the world, and that he was "distressed" by that realization. (Of course, his flaw ended up costing the economy trillions of dollars, so merely being distressed seems a bit mild.)

Now Greenspan tells us that temporarily nationalizing broke US banks might be OK. If that doesn't stop you in your tracks, it should. The man often called the high priest of laissez-faire capitalism is saying that he can imagine briefly taking some of the most troubled US banks into state ownership because that is better than the alternative of letting the market sort it out. That is vertigo-inducing indeed, like Lenin doing an about-face on the whole capitalism thing. It is, quite rightly, getting a lot of attention. After all, if Greenspan thinks there are problems with laissez-faire capitalism, and with market-based solutions to banking problems, what is he likely to say next? That marginal revenue doesn't equal marginal cost for profit maximization? The economic mind boggles at the idea.


Filed under: Bailout Turmoil • Economy
soundoff (7 Responses)
  1. Levon

    When will someone FINALLY step up and say that we simply rely way too much on banks. Economies, like people, must live within their means. An economy living entirely on borrowed money is like a life living entirely on borrowed time. When that is finally realized, we will be able to stop analyzing ways to fix the current system of economics and begin working on creating an entirely new system of economics...one that relies on honesty and prosperty rather than one that relies on predatory tactics and borrowed means.

    – Levon (Redondo Beach, CA)

    February 19, 2009 at 7:55 pm |
  2. lorraine

    allen is talking about things he know and with the years he have behine him he know alot about things happen in the past.hay is is the 20th century and a lot have change maybe some things never change love the history let work for the furture and lets work together.

    February 19, 2009 at 5:39 pm |
  3. earle,florida

    I'd like to add one more comment to your article Mr. Kedrosky. I have no problem with the Nationalization of Small Regional Banks,but a big concern to the Nationalization of Goliath's, such as" Bank of America (Merrill Lynch) ,and Citi-Group"! My reasons are validated by their off-balance sheets being part of their 2010 enclosure in their corporate filings.The "Good-Will" that is on those off-balance sheets will be staggering! Merrill Lynch now a subsidiary of Bank of America has approx. $500 Billion in Collateral Debt (CDO's) Obligations that is financially crushing,and by itself could cause Bank of America to fail. Citi-Group is also in a similar situation with commercial debt that is going to implode,along with their off-bance sheets deficits! These two Goliath's have been "Channell Stuffing"(term used for Sunbeam's debacle) for at least a decade and all that goodwill just can't be offset,Period! Finally ,all I can say ,if the United States Nationalizes these two, the taxpayer will be on the hook for $TrillionsZillions if such a large number exist. Thanks for such a great read,Paul(: JMHO

    February 19, 2009 at 3:47 pm |
  4. Tammy

    In my opinion, Mr Greenspan was greatly responsible for the mess we are in. The Fed has too much power – one man should not have so much power. Playing with interest rates, supporting sub-prime loans, artificially inflating the market with his predictions... I think he retired when he did simply because he knew the house of cards would implode. For once – government needs to stay out of it. The Fed needs to stay out of it. Let the market fix itself. Notice how the DOW increases when we don't hear anything from Obama, et. al.?

    February 19, 2009 at 3:31 pm |
  5. A Graham

    Give me a break. Mr. Greenspan needs to go sit down somewhere. In case anyone wants to watch, catch the replay on CNBC House of Cards. Mr. Greenspan would have done himself a great favor by NOT participating. He only made himself look worse.

    February 19, 2009 at 3:04 pm |
  6. earle,florida

    It's always the other guys fault, right Alan,..?

    February 19, 2009 at 2:44 pm |
  7. Michael "C" Lorton, Virginia

    Greenspan famously conceded that there was a “flaw” in the economic model with which he thinks about the world, and that he was “distressed” by that realization. Now he wants to nationalize some of the banks--wonder will he be as distressed when that doesn't work? A silver-tongue oracle--a lot of "woof" which turns in to nothing.

    February 19, 2009 at 2:26 pm |