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Guest Post: Even Greenspan Admits that Moral Hazard and Fraud are the Main Problems

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Washington’s Blog

Even Alan Greenspan is confirming what William Black, James Galbraith, Joseph Stiglitz, George Akerlof and many other economists and financial experts have been saying for a long time: the economy cannot recover if fraud is not prosecuted and if the big banks know that government will bail them out every time they get in trouble.

Specifically, Greenspan said today in a panel discussion at a Fed conference in Jekyll Island, Georgia (where the plans to form the Fed were originally hatched):

Banks operated with less capital because of an assumption they would be rescued by the government, he said. Lehman Brothers Holdings Inc. wouldn’t have failed with adequate capital, he said. “Rampant fraud” was also an issue, he said.

Lack of Trust

“Fraud creates very considerable instability in competitive markets,” Greenspan said. “If you cannot trust your counterparties, it would not work.”

Greenspan is right.

As leading economist Anna Schwartz, co-author of the leading book on the Great Depression with Milton Friedman, told the Wall Street journal in 2008:

“The Fed … has gone about as if the problem is a shortage of liquidity. That is not the basic problem. The basic problem for the markets is that [uncertainty] that the balance sheets of financial firms are credible.”

So even though the Fed has flooded the credit markets with cash, spreads haven’t budged because banks don’t know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is “the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue.”

***

Today, the banks have a problem on the asset side of their ledgers — “all these exotic securities that the market does not know how to value.”

“Why are they ‘toxic’?” Ms. Schwartz asks. “They’re toxic because you cannot sell them, you don’t know what they’re worth, your balance sheet is not credible and the whole market freezes up. We don’t know whom to lend to because we don’t know who is sound. So if you could get rid of them, that would be an improvement.”

Similarly, Robert Reich wrote in 2008:

The underlying problem isn’t a liquidity problem. As I’ve noted elsewhere, the problem is that lenders and investors don’t trust they’ll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years — the derivatives, credit default swaps, collateralized debt instruments, and so on — has undermined all notion of true value.

Many of these fancy instruments became popular over recent years precisely because they circumvented financial regulations, especially rules on banks’ capital adequacy. Big banks created all these off-balance-sheet vehicles because they allowed the big banks to carry less capital.

Nothing has changed since 2008 … the problem is still exactly the same.

The fraud committed by the giant banks – including mortgage fraud, encouraging appraisal fraud, fraud in representing the soundness of mortgages packaged together into mortgage backed securities, the rating of financial instruments, the numerous types of accounting fraud (repo 105s being just one example) – have continued. No big fish have been prosecuted.

No wonder no one trusts anyone else.

And the government has rewarded the looting by bailing out the bad actors again and again, either directly or through various backdoor schemes. ( And many economic writers believe that quantitative easing itself is just another bailout).

Even Alan Greenspan is calling out fraud and moral hazard. As I noted in April, Greenspan has been a a die-hard neoclassical or “free market” economist:

Alan Greenspan didn’t think regulators should even pay any attention to fraud:

He didn’t believe that fraud was something that needed to be enforced or was something that regulators should worry about, and he assumed she [Brooksley Born] probably did. And of course she did. I’ve never met a financial regulator who didn’t feel that fraud was part of their mission, but that was her introduction to Alan Greenspan.”

Indeed, as Born pointed out last year, Greenspan told her:

I don’t think there is any need for a law against fraud.

However, Greenspan started changing his tune somewhat in April, and his remarks today reinforce his apparent change of philosophy (a change which is as dramatic as the recantation by Judge Richard Posner – one of the leading proponents over the course of many decades for removing the reach of the law from the economy – of his anti-regulatory stance).

Admittedly, talk is cheap, and I’m not sure how much influence former Fed chairs like Greenspan and Volcker have on Bernanke or other sitting officials.

As I asked in April: “Fraud [is] finally being discussed in polite company … now where are the prosecutions?”

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41 comments

  1. attempter

    One of the points that struck me from early on in the crash was the way each bank was implicitly saying, “I’m telling the truth when I say my balance sheet is sound, but all the others are lying about theirs.” Even though every balance sheet was composed of all the same toxic crap.

    I suppose these scattered comments from Greenspan elevate him slightly over McNamara, which isn’t saying much. He certainly hasn’t engaged in a systematic revaluation, something that could force the MSM to report it. (Would they actually freeze out the maestro himself? I suppose they might.)

    It really is amazing, though, how loath almost any of them are to use the obvious word fraud. There’s no doubt at all about e.g. Krugman’s systematic mission to represent everyone as stupid or as psychological head cases, but not as criminals. I don’t recall if he ever said something like this in a column, but in one of his armchair-psychoanalytical blog posts about the austerians, he explicitly said “I don’t think this is class warfare.”

    But it obviously is, and this denial, explicit as in this case, or more commonly implicit, is the biggest of Big Lies. It actually reaches the point of criminally conspiratorial speech.

  2. Rick Halsen

    Without the teeth of Glass-Steagall all such talk is cheap indeed.

    Now one wonders why the change in tune?

    I know why.

    When TS is about THTF it never fails that those that seemingly were conveniently ‘blind’ to what was happening right under their watchful large noses now take on the role of righteous seekers of justice.

    Talk is cheap especially when it comes from those bought so inexpensively.

  3. F. Beard

    The fraud starts with this one: “Your deposit is available on demand even though we lent it out”.

    Our money supply is based on a lie and we expect it to be stable?

    We need fundamental reform after a bailout of the population. Our money system is bogus. How many more Great Depressions and World Wars can we survive?

  4. F. Beard

    Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. Anna Schwartz

    The problem isn’t precisely lack of resources; it is lack of money. That problem could easily be solved with a bailout of the population combined with leverage restrictions on the banks to prevent price inflation and to eliminate the cause of the problem.

    Why are there so few prosecutions? Is it not because of the ridiculous attempt to regulate an inherently dishonest money system?

  5. killben

    Exactly. So as long as Bernanke is there they need not be worried. They will be bailed out. Also FASB rule change helps a lot in keeping the game going!

    So the global economy hinges on what this cretin believes or does.. as simple as that. That is why the need of the hour is to get rid of that cretin .. is there a way to get rid of him?

  6. Steve

    The harm being done to society by this fraud is unimaginable. For example, this (my) family will never again give up it’s children to the military. I will not co-operate with a government who’s only authority is force.
    When more “uneducated” people like me (People Without Passports as Mayor Bloomburg likes to call us) banks balance sheets will seem like such a minor problem.

  7. F. Beard

    As I noted in April, Greenspan has been a a die-hard neoclassical or “free market” economist: Yves

    What part of “government backed banking cartel using the government enforced monopoly money supply” sounds like the free market?!

    The truth is that the banks desire free market capitalism for everyone but themselves.

    1. Ignim Brites

      Right on bro. The real question about Greenspan is why he even became a central banker? A secondary question is why he acted in such a way that the term “Greenspan put” entered the financial lexicon. The most likely explanation is that vanity overcame an otherwise finely tuned analytical mind. This is both psychologically and historically depressing but it at least raises the question of the wisdom of having a central bank. Why couldn’t all these functions be exercised by the Treasury? Where at least there would be political accountability.

      A more interesting explanation of why Greenspan conducted his office of Fed Chairman in such a desultory manner is that he did it on purpose. He acted as a secret agent as it were of economic rationality by deliberately sabotaging the Federal Reserve system. Could that be? Could it be that for nearly two decades we had a deliberate saboteur at the helm of the economy? History certainly affords us the opportunity and even the duty to think of many possibilities.

      1. F. Beard

        He acted as a secret agent as it were of economic rationality by deliberately sabotaging the Federal Reserve system. Could that be? Could it be that for nearly two decades we had a deliberate saboteur at the helm of the economy? Ignim Brites

        I used to believe so myself (with approval, to my shame!) but now I remember that Greenspan is an Ayn Rand gold-bug with horror. Don’t get me wrong, I am a libertarian but just recently came to the conclusion (via Stephen Zarlenga) that gold-bugs are not libertarians. At best, they are deluded tools of the fascist usury class.

        History certainly affords us the opportunity and even the duty to think of many possibilities. Ignim Brites

        Actually, I believe that Greenspan believed he could make paper behave like gold and why not? In fact, in theory, government fiat could behave better that gold. So Alan Greenspan may have proven that the problem is not paper vs gold but government backed fractional reserve banking as he should have known all along.

        1. Ignim Brites

          “…I believe that Greenspan believed he could make paper behave like gold..”. You’re probably right about this although it is still difficult to see that belief animating his actions.

  8. NoniMausa

    One pivotal question is “How small or large must your part in a systemic fraud be, before you are liable for prosecution in that fraud?”

    As Bill Black says, all the elements of an organized fraud crime are present in the monetary collapses of the past 20 years or so. http://www.youtube.com/watch?v=Rz1b__MdtHY

    But, the participants distributed the blame (and to some extent, the profit) among hundreds of thousands of actors in diverse sectors, banks, real estate firms, rating and regulatory agencies. Lots of these people were just doing their jobs, assured by their employers and the pundits that all was well, and the rare people who looked at the whole picture and how their own tiny function enabled it, had the choice of ignoring what they saw, leaving their job, or whistle-blowing if they were in a crucial enough position. And to what end? In such a large scam, would his choice make any difference?

    Of these three options, none was a happy choice, but in a bad job market a man with a family could be excused for playing stupid and getting his financial ducks in a row, while stocking up on ulcer meds.

    ===

    Now, a scam doesn’t work without a mark, and few scammers bother to cheat a poor man. Who was the “rich man” these scammers defrauded? They were exactly the people that are held up as responsible, hard working model Americans — people who saved, people who invested, people who sank their money and care into their homes, people who worked all their lives at one good job and earned a pension in return for their loyalty.

    The American middle class prospered from 1945 to 1975, and built up equity, investments and savings as a result. This created a huge target, like a five tier birthday cake full of fruit and jam, laden with whipped cream and gumdrops. Is it surprising that so many actors mobilized like wasps on all sides, to take bites of this enormous cake before the birthday guests — retirees, families, students, sober Americans — arrived to eat the cake they had baked?

      1. F. Beard

        Speaking of cake:

        The French Lesson of 1789

        Half a loaf and a head
        beats all the loaf and dead.

        Heads they would not use;
        were heads they all did lose.

  9. noash

    Amazing what fear of the truth, and an unwillingness to expose that truth will do.

    Greenspan is changing his tune, but it comes a little too late. I doubt he will influence Bernanke to change his tactics. There is too much fear of the “what if” scenario and so they continue to slog along as if everything is fine.

    The problem is the American public and investors know that none of this passes the “smell” test. So the problem persists and exacerbates. Who will be the voice that finally gets through to the Fed? I fear no one. Then what?

  10. DownSouth

    George Washington said: “As leading economist Anna Schwartz, co-author of the leading book on the Great Depression with Milton Friedman…”

    It is lamentably true that A Monetary History of the United States is “the leading book on the Great Depression.” I say “lamentably” because it is a fictional account of what caused the Great Depression, a masterwork of historical revisionism.

    After all, goes the refrain from our economic overlords, the Great Depression couldn’t have been caused by something private enterprise and unfettered free markets did, could it? The Great Depression couldn’t have been caused by the orgy of laissez-faire known as the Roaring Twenties, could it? The Great Depression couldn’t have been caused by a massive credit and speculative bubble, could it? Absolutely not, according to Schwartz and Friedman, it was all the fault of government:

    The fact is that the Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. A governmentally established agency—-the Federal Reserve System—-had been assigned responsibility for monetary policy. In 1930 and 1931, it exercised this responsibility so ineptly as to convert what otherwise would have been a moderate contraction into a major catastrophe.
    –Milton Friedman, Capitalism and Freedom

    One only has to take a cursory look at this passage from the Wall Street Journal article to see what a defactualized world Schwartz lives in:

    In the 1930s, as Ms. Schwartz and Mr. Friedman argued in “A Monetary History,” the country and the Federal Reserve were faced with a liquidity crisis in the banking sector. As banks failed, depositors became alarmed that they’d lose their money if their bank, too, failed. So bank runs began, and these became self-reinforcing: “If the borrowers hadn’t withdrawn cash, they [the banks] would have been in good shape. But the Fed just sat by and did nothing, so bank after bank failed. And that only motivated depositors to withdraw funds from banks that were not in distress,” deepening the crisis and causing still more failures.

    So the banks didn’t have “a problem on the asset side of their ledgers” in the 1930s? Evidently not, according to Schwartz. “If the borrowers hadn’t withdrawn cash, they [the banks] would have been in good shape,” she assures us.

    Another historical fiction being promoted by Schwartz is found in this passage from the Wall Street Journal article:

    How did we get into this mess in the first place? As in the 1920s, the current “disturbance” started with a “mania.” But manias always have a cause. “If you investigate individually the manias that the market has so dubbed over the years, in every case, it was expansive monetary policy that generated the boom in an asset.
    “The particular asset varied from one boom to another. But the basic underlying propagator was too-easy monetary policy and too-low interest rates that induced ordinary people to say, well, it’s so cheap to acquire whatever is the object of desire in an asset boom, and go ahead and acquire that object. And then of course if monetary policy tightens, the boom collapses.”

    Besides this being a horrible butchering of history—-of the actual actions taken the Federal Reserve during the Big Bull Market of the 1920s—-it is a half-truth because there is not a word about the destructive ideologies of laissez-faire and free-market absolutism that ran amok during the Roaring Twenties.

    So the bottom line is that, even though Schwartz gets it right with the current crisis, she certainly got it wrong in A Monetary History. And because, as Federal Reserve Chairman Ben Bernanke put it, A Monetary History is “the leading and most persuasive explanation of the worst economic disaster in American history,” it’s historical revisionism gave a new lease on life to a whole litany of pernicious laissez-faire, free market and “money [monetary policy] is all that matters” ideologies that should have been relegated to the dustbin of history. The experiences of the Roaring Twenties and the Great Depression should have assured that, but because of the historical revisionism of Schwartz and Friedman, we’re now confronted with the task of reinventing the wheel.

    1. Siggy

      The Friedman Schwartz book is more a point of view than a work of revisionism. What is avoided in that work and continues to be avoided today is that the force which drives the insolvency and fraud that was all a part of the Great Depression and now is the core of the Great Recession is derived from the institution of fractional reserve banking. In our current distress we have compounded the felony by having a global fiat currency.

      What Greenspan now appears to be engaged in is some form of nixionian rehabilitation. A mea cupla just won’t help him. He would be well advised to simply go away.

      1. DownSouth

        Siggy said: “The Friedman Schwartz book is more a point of view than a work of revisionism.”

        Simply not true. It is a lie, a work of propaganda of the worst sort.

        Here is but one small example of the book’s historical distortions, as explained by Paul Krugman:

        Before Keynes, economists considered the money supply a primary tool of economic management. But Keynes argued that under depression conditions, when interest rates are very low, changes in the money supply have little effect on the economy.

        [….]

        Friedman and Schwartz claimed to have refuted Keynes’s pessimism about the effectiveness of monetary policy in depression conditions. “The contraction” of the economy, they declared, “is in fact a tragic testimonial to the importance of monetary forces.”

        But what did they mean by that? From the beginning, the Friedman-Schwartz position seemed a bit slippery. And over time Friedman’s presentation of the story grew cruder, not subtler, and eventually began to seem—there’s no other way to say this—intellectually dishonest.

        In interpreting the origins of the Depression, the distinction between the monetary base (currency plus bank reserves), which the Fed controls directly, and the money supply (currency plus bank deposits) is crucial. ([As Krugman explains earlier,] If the money supply consisted solely of currency, it would be under the direct control of the government—or, more precisely, the Federal Reserve, a monetary agency that, like its counterpart “central banks” in many other countries, is institutionally somewhat separate from the government proper. The fact that the money supply also includes bank deposits makes reality more complicated. The central bank has direct control only over the “monetary base”—the sum of currency in circulation, the currency banks hold in their vaults, and the deposits banks hold at the Federal Reserve—but not the deposits people have made in banks.) The monetary base went up during the early years of the Great Depression, rising from an average of $6.05 billion in 1929 to an average of $7.02 billion in 1933. But the money supply fell sharply, from $26.6 billion to $19.9 billion. This divergence mainly reflected the fallout from the wave of bank failures in 1930–1931: as the public lost faith in banks, people began holding their wealth in cash rather than bank deposits, and those banks that survived began keeping large quantities of cash on hand rather than lending it out, to avert the danger of a bank run. The result was much less lending, and hence much less spending, than there would have been if the public had continued to deposit cash into banks, and banks had continued to lend deposits out to businesses. And since a collapse of spending was the proximate cause of the Depression, the sudden desire of both individuals and banks to hold more cash undoubtedly made the slump worse.

        Friedman and Schwartz claimed that the fall in the money supply turned what might have been an ordinary recession into a catastrophic depression, itself an arguable point. But even if we grant that point for the sake of argument, one has to ask whether the Federal Reserve, which after all did increase the monetary base, can be said to have caused the fall in the overall money supply. At least initially, Friedman and Schwartz didn’t say that. What they said instead was that the Fed could have prevented the fall in the money supply, in particular by riding to the rescue of the failing banks during the crisis of 1930–1931. If the Fed had rushed to lend money to banks in trouble, the wave of bank failures might have been prevented, which in turn might have avoided both the public’s decision to hold cash rather than bank deposits, and the preference of the surviving banks for stashing deposits in their vaults rather than lending the funds out. And this, in turn, might have staved off the worst of the Depression.

        Why does this matter? Monetary policy is a highly technocratic, mostly apolitical form of government intervention in the economy. If the Fed decides to increase the money supply, all it does is purchase some government bonds from private banks, paying for the bonds by crediting the banks’ reserve accounts—in effect, all the Fed has to do is print some more monetary base. By contrast, fiscal policy involves the government much more deeply in the economy, often in a value-laden way: if politicians decide to use public works to promote employment, they need to decide what to build and where. Economists with a free-market bent, then, tend to want to believe that monetary policy is all that’s needed; those with a desire to see a more active government tend to believe that fiscal policy is essential.

        [….]

        Why did historical disputes about the role of monetary policy in the 1930s matter so much in the 1960s? Partly because they fed into Friedman’s broader anti-government agenda…

        Siggy, I could go on and on and on, citing example after example of how the fictional account of the Roaring Twenties and The Great Depression that Swartz and Friedman gave us doesn’t square with factual reality. But it takes a lot of ink to debunk the barrage of distortions, half-truths and outright lies that Schwartz and Friedman put forth. But if you insist, I will continue.

        1. Siggy

          I can see that we shall agree to disagree.

          To the extent that there is trouble if not fallacy in the Friedman viewpoint, I see that as being in the realm of seeking some sort of libertarian nirvana. It is my view that the libertarian point of view is naive. The eden of an inherently moral society does not exist and never will. Inevitably and always, some people will cheat, steal and commit fraud. Some people will seek power in the name of rectifying that which is amiss, organized religions do it all the time.

          It is the failings of people that gum up the theoretical works. The pragmatists among us seek the comfort of a rule of law and a contract supported by courts that ajudicate breaches of contract.

          What happened circa 1929 thru 1937 was all about the profilgate extension of credit coupled with massive and endemic financial fraud. What happened in the period 2005 thru 2009 was a market repudiation of a fiat currency and it’s partner in crime a fractional reserve banking system.

          Krugman presents a very liberal argument that goes off the mark. It is about money and its creation but not necessarily about just how socialistic or libertarian we should be. A few centuries ago it was the practice to require that demand deposits be carried at 100% required reserve rates. Violate that proposition and you went to jail. Not so today, only 10% is necessary say the banksters and their pandering lobbyists. And when there is an investment missjudgment, it shall be the depositors that bear the loss, well no not exactly, it shall be the public purse that bears the loss.

          I suggest you reread your Krugman. Do you believe that we can borrow our way to prosperity? Do you understand that what the government spends must be funded by either or both of taxation and/or a devaluation of the currency? Now comes the modern monetary theorist who says that the government can print money at will. Indeed it can, and the consequence is inflation; i.e., the loss of pruchasing power of the money medium. And with that loss of purchasing power comes the incentive for speculation and the transference of liability.

          What I especially dislike is Greenspan coming out and saying that he did, in fact, create a moral hazard by way of the easy money policies that were followed during his term as Chairman of the Fed. That’s a knish I can’t swallow. Nor can I swallow the Krugman blather about the necessity of more QE when we can’t afford that which has been done.

          As to Milton Friedman and Anna Schwartz, there is more value in their little book than all of that presented by Mr. Krugman. Sadly, their little book has a glaring bias toward some form of libertaian utopia that does not nor never will exist. I don’t believe in free markets, I believe in fair markets. I believe in contracts and a judiciary that ajudicates breaches of contracts in accordance with a 1000 years of common law as its guide.

          So you see, we shall agree to disagree.

  11. jim

    “if the big banks know that government will bail them out every time they get in trouble.”

    Everytime there is a recession isn’t it true the banks get bailed out with cheap money when the fed lowers interest rates they lend to banks at????

    To add insult to injury the banksters can pick up assets on the cheap when they can borrow at such low rates from the fed during recessions.

  12. Valissa

    Great capture of the essence of the situation in plain english. In honor of all the economists who’ve had to readjust their worldview when the results of their groupthink crashed into it…

    Reality is that which, when you stop believing in it, doesn’t go away. – Philip K. Dick

    There are many truths of which the full meaning cannot be realized until personal experience has brought it home. – John Stuart Mill

    “You shall know the truth, and the truth shall drive you mad.” — Aldous Huxley

    “What disturbs men’s minds is not events but their judgments on events.” -Epictetus

    “Faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof.” — John Kenneth Galbraith

    We can avoid reality, but we cannot avoid the consequences of avoiding reality. – Ayn Rand

  13. Banging Brooksley

    I’m confused. Why is the former-oracle taken seriously anymore? Consider that if “greed is good”, Ben said “fraud is good”. In other words, he deserves much of the blame!
    I think the answer is easy, the explosive derivatives trading got some folks rich.

    1. Looking Ahead

      I remember Greenspan talking about “market discipline”,
      but I never understood what he meant.

  14. AndyC

    Greenspan recommended ARM mortgages at some of the lowest historical interest rates ever.

    Are we supposed to think that was some sort of blunder on his part?

    HE’S a FRAUD and always has been a FRAUD.

  15. Cedric Regula

    I’m hopelessly confused over identifying even a group we could single out as a conspiracy to commit fraud.

    It’s getting worse too. After the regulators (presumably newly empowered Big O regulators) have embraced “extend and pretend” and allowed banks to go to mark-to-make believe accounting, then Basel 3 caved in to banking “concerns” about raising cap levels too fast and settled on 7-10 years as the proper timeframe (plenty of time for another financial crisis or two, not to mention a few more billionaires), we have the amazing news that banks are so profitable that US banking bonuses are projected to be $140B this year. Then we got the even more amazing news from Ben that the Fed will now allow the “good” banks to pay out dividends to shareholders again!!!

    I’ll admit that I’m no expert on our newly passed Frankendodd legislation, but my understanding is that the FDIC now has at least some say so, if not the budget, to regulate and spank to extinction, if necessary, the large holding company banks.

    Before then, despite some initial PR from the Fed in the early to mid portion of the crisis stating that they are not regulators, they just do monetary policy, some research on one’s part led to the fact that they share regulatory power over large bank holding companies with another USG entity, Office of the Comptroller of the Currency (OCC). The FDIC just did little to medium size banks.

    So my pitiful understanding of Frankendodd is that the FDIC now gets more authority over the large banks, the OCC is still doing whatever they were doing, the Fed still may have whatever job they weren’t doing and may also be our new systematic risk manager, whatever Ben thinks that job may be.

    So my current confusion lies with Ben giving the banks the go ahead to pay dividends. Is he acting under the authority as the regulator? Or stranger yet, as systematic risk manager? Or is he just more full of crap than we even imagined?

    P.S. Chris Whalen pointed out that BAC still carries $4B on the books as Countrywide “goodwill”. Try and sell that in the “free market”. Or maybe BAC can mail it to investors as a goodwill dividend?

  16. ECON

    I have witnessed in the bankster frauds of this generation the reinforcement of the belief that the smart leaders are not so smart after all and we are re-living the Depression era gangsters.

  17. Progressive Ed

    How could such a complex series of events have only one or two causes? But certainly the bubble economy (See “The Dollar Crisis” by Duncan) and the foundational fraud of the US Gov forcing banks to give home mortgages to people without enough $$$ (“You don’t like poor people, you racists”.) must be included in any final explanatory description of “what happened”.

  18. Bilking Cows

    The danger with Greenspan pivot to “fraud” is this blames men over systems when the TBTF system AND men need overhaul.

    I’m all for lots of jail and imprisonment. But – just as previous years show, times will change, GOP will slash enforcement budgets and it will all repeat.

    Greenspan discussing fraud is self-serving and keeps his architecture in place, while blaming the men who lived under it.

  19. enrique

    Greenspan was a loyal servant of the economic system : If the Fed ( Greenspan,,, and Bernanke ) really believed in free markets discipline they should have allowed the collapse of many banks, the loss of deposits and savings and fraud would not be solved as part of that discipline. Full Stop. But the “free market ” talk was and is an empty slogan to be utilized according to the circumstances.

    The real issue at stake is that the apparent “fraud” was a mean to overcome the main contradiction the American economy have been dealing with for the last 30 years : the stagnation of incomes of MEDIAN American has eroded the purchasing power of the mass consumer but reduced labor cost and increased profits. The lack of purchasing power was temporally “fixed” by handling huge amount of debt to the consumer to compensate that loss of purchasing power .

    That is the real meaning of “fraud” of which Mr Greenspan past actions were just part of the equation : To live under the perception that the Capitalist “paradise” of low wages and high consumption … and high profits ( or bonuses ) can be held forever. In that sense the Fraud is still with us and it´s much deeper than accounting tricks

    1. Barbara Astone

      You are absolutely right.

      People are not consuming because they have too much debt, they’re worried about losing their jobs if they haven’t already, and they can barely keep their heads above water.

      The government needs a JOBS PROGRAM so people can make their mortgage payments, pay down their debt, and eat — without having to choose which one to do first.

      By all means, prosecute the fraud! I’m all for the rule of law.

      But in the meantime, people need to get back to work. If the private sector isn’t hiring, then government needs to fill the void — now. To hell with the god-damned deficit. Since when is the deficit more important than 10% unemployment right after an economic collapse! What a load of crap.

      You know what, we need to organize.

  20. Joseph j7uy5

    And they (the Fed) wonder why the banks are lending? You can’t have an expansion of credit, when there is no trust. We are not going to restore trust, until fraud is prosecuted.

  21. rewinn

    Funding regulation, and even paying for bailouts, would be trivial with a tiny tax on financial transactions, e.g. 25 cents per $100.

  22. lambert strether

    There will be no restoration of confidence until we see banksters in orange jump suits doing the perp walk on national TV. And no “bad apples,” either. Accounting control fraud, by definition, takes place at the executive level.

  23. ep3

    screw that criminal. he made is money and is now coasting into the sunset while his wrinkled wife shows her face all over television.
    His talk is just part of the game. I talked about this early in Obama’s presidency when this slime crawled back out of the sea to bash Obama’s plans. He makes these comments to undermine the progressive change. Any time support for Obama’s plans shows some chance of moving left, people like him stagger into the light and criticize the policy and say “we suggested he do this, but…” which makes Obama look weak. Now, they don’t just do it to Obama; it is common all over the political landscape. Heck he could be supporting even more stimulus or whatever and say “Obama’s plan needs more of this”. But what this does is undermine the plan and make it look weak and then it gets trashed in the media.

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