Greenspan’s Dark Legacy Unmasked

Stephen Lendman

Posted Oct 3, 2007      •Permalink      • Printer-Friendly Version
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Greenspan’s Dark Legacy Unmasked

by Stephen Lendman

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.”

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.”

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.

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.

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

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.

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

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.

Greenspan’s Background and Tenure as Federal Reserve

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.

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.”

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.

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.

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.

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

—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

—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.

—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

—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

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.

—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

Greenspan’s Role in the Greatest Modern Era Wealth
Transfer from the Public to the Rich

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.”

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.

The Commission recommended:

—Social Security remain government funded and not
become a voluntary program (that would have killed

—$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;

—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.

—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;

—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;

—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;

—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;

—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.

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%.

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.

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.

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.

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

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.”

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.

Stephen Lendman lives in Chicago and can be reached at
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