Alan, like Atlas, Shrugged

Chris Lester - Kansas City Star

Oh, Alan. What would Ayn say?

Alan Greenspan's reluctant recent acknowledgment of his crucial role in the ongoing global credit crisis missed one crucial element -- his devotion to objectivist philosopher and author Ayn Rand.

Most notably in the fictional tome Atlas Shrugged but throughout her life, Rand pushed Adam Smith's relatively brief discussion of self-interest in Wealth of Nations to the intellectual limit.

In Rand's view of the world, all creative value springs from the rationally self-interested individual pursuing personal happiness. Government was portrayed as little more than an obstacle that stifles the creative spirit of individuals such as John Galt in Atlas Shrugged.

Rand won a devoted following, including the then-youthful Greenspan. And he carried that intellectual baggage even as he crossed the line from the private sector to public servant.

There's no small irony in someone with the intellectual background of Greenspan becoming chairman of the Federal Reserve, a job that by definition required him to protect the public interest.

So it shouldn't be terribly surprising that at the crucial moment in the credit bubble, Greenspan chose to turn a blind eye to market players who were binging on subprime mortgages, debt securitization and derivatives. He just reckoned all those self-interested folks would act responsibly.

While there are plenty of targets for finger-pointing as taxpayers dig into their wallets to finance a credit bubble bailout that may well exceed $1 trillion, you can't go wrong starting with Greenspan.

His role was twofold.

Not only did he and his colleagues at the Federal Reserve push the key short-term interest rate down to 1 percent in the wake of the 2001 recession and the 9/11 terrorist attack, they maintained that incredibly low rate for quite a while.

Worse, Greenspan effectively ignored warnings from some colleagues that essentially unregulated players in the mortgage market were running amok with all that cheap money, providing exotic mortgages to people who had little or no chance of repaying those loans with their own resources and selling slices of those mortgages upstream to greater fools.

Now the 82-year-old Greenspan is watching his legacy as the "maestro" of monetary policy melt down like the Dow Jones industrial average. Now, after the evisceration of trillions of dollars in housing and stock market equity, he is advocating the sort of government intervention in the marketplace that Rand abhorred.

Greenspan's increasingly feeble defense of his record led to a profoundly embarrassing congressional appearance before the usual pack of grandstanding politicians.

Under intense grilling, Greenspan finally acknowledged that he "found a flaw" in his philosophy.

"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," Greenspan told the House Committee on Oversight and Government Reform.

Rand must be spinning in her grave.

While no fellow traveler, I must confess a modest interest in Rand's writings -- one partially tied to family.

I have my mother's tattered copy of Atlas Shrugged, which she read shortly after its publication in 1957. I also witnessed my sister, who was never a heavy reader in her youth, start reading Rand, rip through virtually everything she ever wrote, and declare her allegiance to Rand's philosophical view of the world.

By comparison, I'm just a dabbler in Rand's writings. Indeed, Atlas Shrugged still sits next to my bed, along with Robert Caro's The Power Broker serving as the twin peaks of unfinished tomes in my life.

There's something to be said for examining the intellectual backgrounds of key public figures for clues into how they will carry out their duties. Indeed, it provides some insight, and perhaps some comfort, when applied to Greenspan's successor.

Current Fed chairman Ben Bernanke is a product of academia, which may be understandably discomforting for folks who live in the real world. But he gained much of his reputation as a Princeton economist examining the policy mistakes that deepened and prolonged the Great Depression.

While plenty have questioned the speed and clarity with which Bernanke has dealt with the current crisis, there's no doubt that the policy approach is starkly different than that of the Fed in the early 1930s, which should help us stave off the worst possible scenario.

The emerging concern, though, is that the Fed last week reduced short-term interest rates to the same profoundly low level orchestrated by Greenspan. And one wonders if we're setting ourselves up for even more economic damage in coming years if the extraordinary monetary stimulus now sloshing around the financial system isn't taken back quickly enough when the economy recovers.

There's plenty of deja vu going around these days.

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