The End of Alan "Gold-Bug" Greenspan?

President Clinton is coming up on the most important appointment of his second Presidential term. Sometime soon, the term of the Chairman of the Board of Governors of the Federal Reserve System will expire. And the President must choose whether to reappoint Alan Greenspan for four more years, or else to name a replacement. Most observers assume that Greenspan will get it, and a strange public quiet has settled over this issue.Yet Greenspan's track record is poor. He did act back in 1987 to prevent that October's stock market crash from turning into a Depression. But he did not cut interest rates in time to prevent the recession of 1990, nor to foster recovery in 1991. And in 1994, he virtually wrecked Clinton's first term, by raising interest rates immediately after the 1993 deficit reductions (which were supposed to bring rates down) passed into law.The destructiveness of that 1994 action is now clear. The economy is slowing on all fronts. And the Federal Reserve is again cutting interest rates, bit by bit. Whatever happened to the threat of inflation? It never existed. The economy last year was actually much more fragile than Greenspan thought. And now, because interest rates were doubled then in a false cause, stagnation and rising unemployment, or even a recession this year, cannot be ruled out.Can't anyone make a mistake? Yes, but this is not the first time. A bias toward high interest rates and high unemployment is part of Mr. Greenspan's personal, political, and ideological fabric. It is not accidental. It is systematic.Personally, Alan Greenspan is a very, very conservative man -- not a run-of-the-mill conservative but, philosophically, an extremist. He once publicly favored the gold standard, and may still. He gave one thousand dollars, I'm reliably told -- a thousand dollars! -- to the 1984 re-election campaign of the Senate's most powerful reactionary (and closet gold bug), Senator Jesse Helms.Indeed, Greenspan's entire professional life has been devoted to the service of the rich. His early ideology, as a follower of Ayn Rand, celebrated such service. And his later career, private and public, confirms that the rich and powerful are the people he respects, admires, and works for.In the mid-1980s, these leanings took Greenspan into the orbit of Charles Keating, the highest flyer in the Savings and Loan industry at that time. Keating's Lincoln Savings and Loan Association was in trouble, as regulators wised up to its real estate scams. Keating needed lots of help. Greenspan, then a private consultant, obliged. On one day for which we have records, December 17, 1984, Greenspan traveled to Washington to lobby on behalf of Keating. Greenspan's personal fee for that one day was twelve thousand dollars.What kind of work did Keating get? On February 13, 1985, Greenspan wrote a long letter to the principal supervisory agent of the Federal Home Loan Bank in San Francisco. In it, he committed his vast prestige to the proposition that Lincoln and Keating presented "no foreseeable risk to the Federal Savings and Loan Insurance Corporation." The letter is a classic of Randian farrago:"1. Lincoln's new management, and that of its parent, American Continental Corporation, is seasoned and expert..."2. The new management has a long and continuous track record of outstanding success in making sound and profitable direct investments."3. The new management succeeded in a relatively short period of time in reviving an association that [was near] the point of insolvency."4. The new management effectively restored the association to a vibrant and healthy state, with a strong net worth position, largely through the expert selection of sound and profitable direct investments..."And so on.In fact, Lincoln Savings and Loan Association was at the heart of a massive fraud; those "sound and profitable direct investments" were mostly worthless. The collapse, when it came, by itself cost American taxpayers about three billion dollars, more than any other single S&L. It also resulted in more than six felony convictions, including that of Charles Keating.Greenspan's reconfirmation would come before the Senate Banking Committee, whose chairman, Senator Alfonse D'Amato, is the chief inquisitor into that fringe of the S&L scandal known as Whitewater. Lincoln's failure was roughly a hundred times more costly. And Greenspan is being considered --amazingly enough by a Democratic President -- for reappointment to the single greatest position of financial trust in the entire world.It would be nice to think that, if the occasion arises, the Senate Banking Committee will investigate carefully what Greenspan really knew of Lincoln Savings and Loan and about Charles Keating back in February of 1985. The Senators should ask what Greenspan actually did, to assure himself of the accuracy of his knowledge, before drafting that influential letter and before collecting another Keating fee. (They won't, of course.)Weak ethics or poor judgment? Hard to say. Charitably, I'd guess that Greenspan was simply seduced by Keating. But however that may be, so long as those old S&L coals continue to smolder, Greenspan's Keating connection is another good reason why Clinton should pick somebody else to chair the Federal Reserve.Indeed, given what we know up to this moment, it might be smarter for the President to name his wife to the job.


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