Alan Greenspan Admits America Is A Crony Capitalist System

Tyler Durden's picture

We are not sure what is more amusing: the Masetro's unwitting (and quite correct) observation that America is now nothing but a crony capitalist country, or his attempt to back out of what he said that so perfectly captures the essence of the failed corporatocracy currently raging in America. In the following exchange from a DemocracyNow interview, Greenspan is forced to respond to his quote from Age Of Turbulence on the definition of crony capitalism: "When a government's leaders or businesses routinely seek out private sector individuals or business, and in exchange for political support bestow favors on them, the society is said to be in the grip of crony capitalism. The favors generally take the form of monopoly access to certain markets, preferred access to sales of government assets, and special access to those in power." Greenspan's pathetic excuse is that while crony capitalism is a "dominant force" in some other regimes, it is "not the dominant force in this country." Perhaps all those who are fighting with the virtual monopoly granted to certain players, such as Goldman in fixed income trading, and Pimco in government bonds, would beg to differ. So yes, according to the Greenspan definition America is now nothing more than a crony capitalist society, which will only get worse as more and more power it granted to those who are believed to be able to ramp various asset classes, and thus the market in general, higher, because as Greenspan himself pointed out recently, nothing is as important a "driver" to the economy as the stock market: "if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here". In the administration's pursuit of Dow 36,000 to prove that all is well, America has given up on its core constitutional tenets, and is now nothing better than a dictatorial regime in some far-eastern backwater country.

Fast forward to 44:40 in the clip below (after the jump) to see the exchange.

h/t Geoffrey Batt

 

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Slash's picture

he'll be getting a call from Zuel at GS telling him to shut his trap

Mercury's picture

Actually, I take that 'Wow' back.  I thought I was going to be looking at video of Alan Greenspan going off the reservation and denouncing Obama's creeping totalitarianism and unicorn economics or something - possibly also a little drunk with a broken tennis racket in his hand.  Nothing of the sort. My bad.

Although I think his easy money policies were terrible for this country Greenspan presents himself very well here.  Naomi Klein is a tedious, whiny, red-diaper baby fighting battles that were won by the other side decades ago (she's also full of shit with her 'populist' happy talk). Hell even WGBH has come out saying Pinochet and Milton Friedman did much more good for Chili than harm in their new money doc: http://www.wgbh.org/programs/programDetail.cfm?programid=425 (watch it - it's pretty good and way better than anything CNBC has ever put out).

Back up to around 40:00 or before and tell me where Greenspan is made to look foolish by these Leftist angels of social justice.  Does Klein think Obama's ever bigger, everywhere-all-the-time government is going to end up being less conducive to crony capitalism and corruption? Please.

update: How old is this video anyway? 2007? Not exactly news.

 

Rick64's picture

 They are talking about the monetary policies of the Greenspan error I mean era, not comparing the Obama admin. policies which weren't in existence at the time of this video.

  Greenspan endorses Bush tax cuts in 2001 but changes his mind in 2002-2003 and says he only endorses them if they are matched with cuts in entitlement spending including Social Security. Fair enough except he stated in 2001 before congress that tax cuts wouldn't threaten Social Security.

  In the booming housing market he kept the interest rates low which made the subprime market possible. BTW who did this benefit ? According to him it made it possible for many people to afford houses that otherwise couldn't. According to me it made it possible for many people to live way beyond their means and benefitted GS, MS, BOA, JPM, and after the crisis who is it still benefitting. This should remove any doubt as to where the interests of the FED lie.  Greenspan is not some idiot that after 2 decades realized he was wrong, the decisions he made were based on what was good for the banks and corporations which lend from the banks. The general population doesn't even come into the equation, they are only slaves. 

Mercury's picture

I'm not sure an ability to live way beyond your means = slavery and Social Security's biggest threat is itself.  See Bruce Krasting's latest: http://www.zerohedge.com/article/ss-pay-100s-billions-illegal-workers

 

Rick64's picture

 Can't argue the Social Security dilemma, but what I meant by living above your means was relevant to the subprime crisis in which banks were lending money to people that didn't have the means to pay it back.

Everyman's picture

+100  THAT was funny!  Zuel you crazy guy.

Calvin Jones and the 13th Apostle's picture

I just want to know who told him it was a good idea to go on Democracy Now! in the first place.  Does he know anything about Amy Goodman?  Greenspan was the ultimate useful idiot.

kato's picture

feckin' eejit

AnonymousMonetarist's picture

Personally I prefer the term Nancy Capitalism... socializing the downside and piratizing the upside... D'ahr

 

(All the italicized quotes below are from the Maestro himself. -AM)

By Alan Greenspan
March 11, 2009
Wall Street Journal

We are in the midst of a global crisis that will unquestionably rank as the most virulent since the 1930s. It will eventually subside and pass into history. But how the interacting and reinforcing causes and effects of this severe contraction are interpreted will shape the reconfiguration of our currently disabled global financial system.(In retrospect, I see nothing that we did that was inappropriate in terms of policy.)

There are at least two broad and competing explanations of the origins of this crisis. The first is that the "easy money" policies of the Federal Reserve produced the U.S. housing bubble that is at the core of today's financial mess.(I do not deny that many appear to have succeeded in a material way by cutting corners and by manipulating associates, both in their professional and in their personal lives.")

The second, and far more credible, explanation agrees that it was indeed lower interest rates that spawned the speculative euphoria. However, the interest rate that mattered was not the federal-funds rate, but the rate on long-term, fixed-rate mortgages. Between 2002 and 2005, home mortgage rates led U.S. home price change by 11 months. This correlation between home prices and mortgage rates was highly significant, and a far better indicator of rising home prices than the fed-funds rate.(The Fact that our economical models at The Fed, the best in the world, have been wrong for fourteen straight quarters, does not mean they will not be right in the fifteenth quarter.”)

This should not come as a surprise. After all, the prices of long-lived assets have always been determined by discounting the flow of income (or imputed services) by interest rates of the same maturities as the life of the asset. No one, to my knowledge, employs overnight interest rates -- such as the fed-funds rate -- to determine the capitalization rate of real estate, whether it be an office building or a single-family residence.

The Federal Reserve became acutely aware of the disconnect between monetary policy and mortgage rates when the latter failed to respond as expected to the Fed tightening in mid-2004. Moreover, the data show that home mortgage rates had become gradually decoupled from monetary policy even earlier -- in the wake of the emergence, beginning around the turn of this century, of a well arbitraged global market for long-term debt instruments.(History has not dealt kindly with the aftermath of protracted periods of low risk premiums.")

U.S. mortgage rates' linkage to short-term U.S. rates had been close for decades. Between 1971 and 2002, the fed-funds rate and the mortgage rate moved in lockstep. The correlation between them was a tight 0.85. Between 2002 and 2005, however, the correlation diminished to insignificance.(There's potential for individual disaster there.)

As I noted on this page in December 2007, the presumptive cause of the world-wide decline in long-term rates was the tectonic shift in the early 1990s by much of the developing world from heavy emphasis on central planning to increasingly dynamic, export-led market competition. The result was a surge in growth in China and a large number of other emerging market economies that led to an excess of global intended savings relative to intended capital investment. That ex ante excess of savings propelled global long-term interest rates progressively lower between early 2000 and 2005. ("Anything that we can do to raise personal savings is very much in the interest of this country.")

That decline in long-term interest rates across a wide spectrum of countries statistically explains, and is the most likely major cause of, real-estate capitalization rates that declined and converged across the globe, resulting in the global housing price bubble. (The U.S. price bubble was at, or below, the median according to the International Monetary Fund.) By 2006, long-term interest rates and the home mortgage rates driven by them, for all developed and the main developing economies, had declined to single digits -- I believe for the first time ever. I would have thought that the weight of such evidence would lead to wide support for this as a global explanation of the current crisis.

However, starting in mid-2007, history began to be rewritten, in large part by my good friend and former colleague, Stanford University Professor John Taylor, with whom I have rarely disagreed. Yet writing in these pages last month, Mr. Taylor unequivocally claimed that had the Federal Reserve from 2003-2005 kept short-term interest rates at the levels implied by his "Taylor Rule," "it would have prevented this housing boom and bust. "This notion has been cited and repeated so often that it has taken on the aura of conventional wisdom.("Any informed borrower is simply less vulnerable to fraud and abuse.")

How much does it matter whether the bubble was caused by inappropriate monetary policy, over which policy makers have control, or broader global forces over which their control is limited? A great deal.(Difficult to suppress growing market exuberance when the economic environment is perceived as more stable.)

If it is monetary policy that is at fault, then that can be corrected in the future, at least in principle. If, however, we are dealing with global forces beyond the control of domestic monetary policy makers, as I strongly suspect is the case, then we are facing a broader issue.(I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said.)

If we are to retain a dynamic world economy capable of producing prosperity and future sustainable growth, we cannot rely on governments to intermediate saving and investment flows. Our challenge in the months ahead will be to install a regulatory regime that will ensure responsible risk management on the part of financial institutions, while encouraging them to continue taking the risks necessary and inherent in any successful market economy.(“The true measure of a career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your wake.")

Cognitive Dissonance's picture

Welcome back my friend. I always enjoy reading your missives.

AnonymousMonetarist's picture

Just vibrating restlessly while papertrading 'da fractals' and waiting for the programmers to finish the gig.

You seem to be churning out some classics lately :)

Cognitive Dissonance's picture

Just vibrating restlessly while papertrading 'da fractals' and waiting for the programmers to finish the gig.

I remember you saying you found the hot spot (or was it the G spot you finally found?) and you were going to start trading using a sure fire method. Glad to see you're actually following your delusion. :>) BTW use someone else's money to beta test the algo.

You seem to be churning out some classics lately :)

As the spirit moves me. Or, based upon some nasty comments left under my last one, maybe it was my bowels that moved? :>)

BlackChicken's picture

I love this quote: (“The Fact that our economical models at The Fed, the best in the world, have been wrong for fourteen straight quarters, does not mean they will not be right in the fifteenth quarter.”)

WHY does anyone listen to this owl-worshiping-compromised-fool?  Hell, a six year old flipping a coin would have better results than the 'best in the world' has to offer.

Unless... 'best in the world' is only referring to any one of satan's bitchez; then this makes more sense.

Ripped Chunk's picture

Like an old horse player down to his last $2.00................

Cognitive Dissonance's picture

This is simply the rehabilitation of Greenspan in action. He strayed from the path and made some "mistakes". He's now hard at work moving back into the good graces of the public. In order to do this he must regain credibility and that means repudiating some of what he helped create.

The keepers of the public myth are constantly recycled like an old glass Coke bottle that becomes a pickle jar which becomes a jar of K-Y jelly. Lather up folks, the "new and improved" Greenspan is here to smooth the way and give you pleasure.

Hum, is that a new scent?

Ripped Chunk's picture

He is going to die soon and he seems to have (finally) realized that he will not be getting into Heaven.  There is no way for him to atone. Better adjust to the hotter climate Alan.

Paper CRUSHer's picture

Well Cog's ol'pal,

" EXTRA,EXTRA,READ ALL ABOUT IT .......READ ALL 'BOUT IT FOLKS.....GREENSCUM A HERO....ALL ABOUT IT"

http://1.bp.blogspot.com/_L6AscCVN870/S7oWMYEP_0I/AAAAAAAAARs/kSdvp7XRQ7...

.....Ohhhh Magoo ya dun it again.

Kangaroo's picture

Has no one ever pressed Greenspan further as to how exactly equity prices "drive" economic growth? If so I would love to see his justification

AR15AU's picture

The FDA, EPA, Fish & Wildlife, etc, are the big players in enforcing crony capitalism.

Bearster's picture

Plus FDIC, FED, CFTC, OTS, SEC, FHA, IRS, DOE, DOT, etc.

Kali's picture

Don't forget your state and local code enforcement and regulatory agencies.  Just talked to my coin dealer.  They have been in building for 4 years.  Just got two $400 fines and repair expenses for 1)  Fire alarm switch was 1.5 inches too low.  2) Sink in employee kitchen was two inches too high.  Cripes.  Wonder why there are no jobs out there?

Hansel's picture

"I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works"  -Alan Greenspan, House Oversight testimony 2008

sethco's picture

Inscrutable genius + "unforseeable events" = bumbling douchebag

King_of_simpletons's picture

A Maestro, I say. Plays the orchestra to the mood of the audience. Brilliant ! Bravo !!

DollarMenu's picture

Is it wrong, in spite of the suffering he has, does, and continues to cause,

to take pleasure in watching Sir Alan approach his maker with increasing speed, while his life, his, tattered values, and his battered soul try to arrange themselves into an acceptable presence?

An example of a sleazy sell-out to serve as example for generations to come.

Bearster's picture

An eloquent argument against government and business working together to grab more power in the form of new market regulations based on the speed of one's computer or network connection...

Attitude_Check's picture

This video dates form the Bush administration - it is a BIT dated.

Caviar Emptor's picture

For proof of Crony Capitalism, you don't need to look very far. $200 Billion in tax cuts for "R&D" investment just before an election is one perfect example. 

Keep in mind that the corporate sector (big biz, not small) already got huge gifts from the government since March 2009. Why? Because they binged and relied on short term credit and frothy capital markets to fund operations all through the 1990s-2000s. When the music stopped in fall 2008, they were caught short. Big time. 

Hence the record issuance in secondary stock and junk bonds. Secondaries and junk bonds could only fly if the stock market was. That was one hidden purpose for rising the stock market by giving risk free money to  the banks. That's what magically restored corporate balance sheets and cash positions in a terrible economy. The mother of all backdoor bailouts (bank bailouts were mostly front door, we all knew about them)

Now that the market is approaching saturation (August was another near record junk bond issuance month), something's gotta give. So the choice was this: either Big O gives us bailouts or we're going to start laying off and shutting down. 

You can guess the spin: "Mission Accomplished!"

Ripped Chunk's picture

+ 1,000

But today's junk pays coupon at yester year's normal risk premium.

 

Cognitive Dissonance's picture

Very nice WB7. And with Halloween less than two months away. Hope I don't scare the adults.

 

Young's picture

Reopen Alcatraz and fire up ol' sparky, prisoner 000001 is ready for entry.

Ripped Chunk's picture

Yes of course and Alan is one of the cronys.

I have said this before: He is old now and he is trying to get into Heaven. NOPE !! Not gonna happen Alan.

 

crosey's picture

Look for others to bare their souls, in the days and weeks ahead.

It's so bad that more and more are "getting religion".  Sure sign of the magnitude of the mess.

Takingbets's picture

You know, I'm pretty much done with monitoring the markets. I along with many people I know were waiting for the Government and HFT's to quit meddling in them to reinvest our money. It's a shame that can't happen. I guess they don't really need or want other people's money.

Cognitive Dissonance's picture

They're using your money without your consent. And forget about all that debt. Just wait for the inevitable hyperinflation, the ultimate form of confiscation, when the US dollar currency crisis eventually hits. It might take 2 years. Or 5 or 10. But eventually people will lose faith in the almighty fiat dollar. 

Ned Zeppelin's picture

The sooner he shuts his trap for the rest of time, the better.

D-Falt's picture

"if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here".

 

Yep.  I'm sure the tooth-fairy will leave a whole bunch of dimes under Helicopter Ben's pillow to fund all of that via the purchase of indicies...

MacedonianGlory's picture

Its not crony xapitalism. Its not even capitalism.

Its PURE SOCIALISM. The fascist version.

 

Perseid.Rocks's picture

"if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here"

You have to admit, if the government can completely control prices of all equities, then they can create phantom wealth and manipulate the bubble at will. Anyone holding equities can be granted unlimited wealth by the PTB. Of course there is the little question of exactly who is on the other side of those trades when time comes to sell the securities.

Timmay's picture

Greenspan likes the Vikings on Thursday night. Bet accordingly....

Freewheelin Franklin's picture

I couldn't give two shits about what "Mr God" has to say. Fuck him, fuck him and fuck him.

 

*Fingers in ears*  Lalalalalalalalalalalalalalalalalalala.

web bot's picture

You know... once this mess is full blown... we'll need constitutional changes. Something is rot in the structure. Capitalism works... but needs fixin.

 

 

Raging Debate's picture

Better make sure all the delegates are there before amendments and authorization :)

LooseLee's picture

Screw the Maestro! This one man is more responsible for the malinvestment of capital and Wall St. welfare over the past 30 years than anyone else in this country.  Although Helicopter Ben is fast on his footheels, no one has done more to damage the ideal of Capitalism than Alan Greenspan! What a criminal moron is he!

Haole's picture

L...

O...

L...

Without a doubt one of the most prolific clowns wandering the face of the Earth.

Rick64's picture

 Endorsed tax cuts in 2001 and endorsed making them permanent in 2004, his reply to this was that he changed his mind in 2002-2003 and only endorsed them if the tax cuts were matched with entitlement cuts including Social Security, but in 2001 before the senate committee he said tax cuts wouldn't threaten Social Security. Don't pay any attention to what he says only what he does. The bumbling idiot, I'm sorry, I made a mistake routine is just a smokescreen for the agenda. It works everytime.

Grand Supercycle's picture

DOW/S&P500/FTSE/EURO short signal continues :

http://stockmarket618.wordpress.com