By Cliff Montgomery – Oct. 18th, 2009
The Obama Administration should break up all large financial entities considered “too big to fail,” former Federal Reserve Chairman Alan Greenspan recently told a top neo-conservative organization.
Such huge financial entities have an implicit advantage in the marketplace, as bankers know the federal government now has no choice but to pay for their bad investments, gambles and other mistakes.
The very size and scope of these corporations thus effectively create a monopolized financial system, as Greenspan’s statements on Oct. 15th at the Council on Foreign Relations Headquarters in New York made clear.
“If they’re too big to fail, they’re too big,” Greenspan said flatly.
“In 1911 we broke up Standard Oil–so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do,” added the former Federal Reserve Chairman.
The Obama Administration has considered such relatively mild fixes as demanding higher capital ratios on America’s larger banks or simply imposing a tax on these financial institutions. Greenspan rejected these arguments.
“I don’t think merely raising the fees or capital on large institutions or taxing them is enough,” said the former Fed chairman.
“I think they’ll absorb that, they’ll work with that, and it’s totally inefficient and they’ll still be using the savings,” he added.
Greenspan stated that while “breaking down organizations into various different sizes” goes against his personal economic philosophy, no bank should remain so large and monopolistic that it cannot fail.
“If you don’t neutralize that, you’re going to get a moribund group of obsolescent institutions which will be a big drain on the savings of the society,” said Greenspan.
The former chairman’s basic notion obviously is correct: If the banks are “too big to fail,” they’re too big to exist.
But what Greenspan apparently left out of his speech is that many of America’s deepest economic problems–which include the increasingly intrusive power of our nation’s financial entities–occurred on his watch.
Alan Greenspan’s philosophical mentor was Ayn Rand, whose empty rhetorical ideology now serves as a basis for neo-conservative economics.
Rand’s flimsy arguments for the “free market” remain mere rationalizations for insane corporate gambles and economic monopolies that only benefit a wealthy few.
And Greenspan, who served as Fed chairman from 1987 to 2006?
“Alan Greenspan…enlisted himself and the awesome governing powers of the central bank in advancing the ‘reform’ agenda of the Republican right,” wrote The Nation’s William Greider in 2005.
“The chairman thus became an important actor in…the retreat of government, the rise of market ideology and the financialization of American economic life,” added Greider.
“[Thanks to Greenspan,] the ‘money guys’ gained hegemony over the ‘real economy’ of production and work–the people and businesses who make things,” Greider stated.
Those are the kinds of actions which destroy economies and produce anything but a “free market”–a matter we now have discovered through bitter experience.
