A Guy We Could Get Really Fed Up With

Here in Alan Greenspan’s America, tearing down the protections put in place after the Great Stock Market Crash of 1929 is all in a day’s work.

Ignoring the wisdom acquired at enormous cost and pain, we’re just walking right over what’s left of the laws that were put in place in the 1930s to save capitalism from itself. April 7’s papers report the Bankers Trust New York Corp. is set to buy Alex Brown & Sons Inc., the nation’s oldest brokerage firm, thus ending the Glass-Steagall Act of 1933. That’s that.

Poor Wright Patman, moaning in his grave.

The Glass-Steagall Act has not been repealed, despite a decade-long campaign by the “financial services industry,” as it now calls itself. It’s just being ignored; federal regulators have decided to slumber through the demolition.

The Glass-Steagall Act prohibited banks from underwriting stocks or bonds and was prompted by the massive wave of bank failures after the ‘29 crash, caused by the risks that banks took in the stock market. The banks have been chipping away at the law since 1983, and the Bankers Trust-Alex Brown deal just removes the keystone. The law is now a ruin. Last year, the Federal Reserve increased the amount of revenues that banks’ securities can derive from underwriting from 10 percent to 25 percent, thus setting up the deal.

Funny, I was just reading an article by Tom Friedman about how the new market economies, like Albania’s, don’t have the regulatory structure to handle capitalism. Funny, I was just listening to Sen. Pat Moynihan proudly proclaim that we have finally learned how to manage capitalism.

Actually, our economy is in the hands of Greenspan, a former member of that fathead Ayn Rand’s inner circle and a man who believes that S&Ls, banks and Wall Street should be free from all regulation. You will not read this in the Establishment press, which (in Robert Sherrill’s phrase) “slobbers” on Greenspan, but based on his record, the man is a fool. Starting with the infamously idiotic “Whip Inflation Now” campaign of the 1970s, Greenspan has contributed to almost every economic unpleasantness of the past 24 years.

He helped defeat Jerry Ford by advising the poor man to reduce government spending in the middle of a recession. With unemployment at 8 percent and the economy in the worst recession in 14 years, Greenspan blithely denied that there was a recession. During his unmercifully brief return to private life, Greenspan distinguished himself by being consistently wrong.

In 1985, he assured both the Senate and government regulators that Charles Keating and his Lincoln S&L were just jim-dandy folks. The management was “seasoned and expert” with “a long and continuous track record of outstanding success in making sound and profitable direct investments.” (Greenspan generously overlooked Keating’s 1979 brush with the Securities and Exchange Commission, which charged him with making millions of dollars of improper loans to insiders and friends.) When Lincoln failed, it cost the taxpayers $3 billion.

Both Kevin Phillips and William Greider have dissected Greenspan’s performance as the Reagan-appointed head of the National Commission on Social Security Reform in 1981. And what a performance that was: a $200 billion tax increase, which was was hopelessly regressive and (in Phillips’ words) “a slick use of Social Security dollars to reduce pressures for a higher top income tax rate.” Following his pattern of the 1970s, Greenspan again took us into a recession in 1990 and then ignored it, causing untold damage.

He has continued his winning ways in the Clinton administration. In 1992, the deal was that if Clinton lowered the deficit, Greenspan would lower interest rates. Clinton lowered the deficit significantly, and Greenspan proceeded to raise interest rates seven times. He was back to his old tricks last week, bumping interest rates to benefit banks and bondholders.

Look at the market - do you honestly think the value of American corporations listed on the stock exchange has increased by 70 percent in the past two years? Are they manufacturing 70 percent more products? Are they providing 70 percent more services? Chief economist Richard Hokenson of Donaldson, Lufkin & Jenrette told Money magazine, “Merger fever is sweeping through the market. In the late ‘80s and early ‘90s, companies were able to boost their earning through cost-cutting. Today, companies have few such places left to cut expenses and therefore have to look to external means, such as mergers, to sustain their growth.”

The magazine observes: “Today, mergers are approaching manic proportions, even by the feverish standards of the past seven years. There were 32 proposed deals worth $3 billion or more in 1996, up from fewer than five a year between ‘90 and ‘92.” The Bankers Trust-Brown deal will, of course, set up another wave of mergers in “the financial industry,” with banks, brokerage houses and insurance companies all getting into one another’s business in a giant spaghetti bowl of self-interest.

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