By Edward Angly, copyright 1931




The Presidential Campaign, 1928


James J. Davis

OCTOBER 24, 1928.

The single issue in the presidential campaign is how can we best maintain and increase prosperity in America, and who is the man to do it.

At Paterson, N. J.

Charles Curtis

OCTOBER 24, 1928.

The only issue in this campaign is the continued prosperity of the American people.

—At Rochester, N. Y.

Otto H. Kahn

OCTOBER 25, 1928.

The kind of prosperity which Mr. Hoover is so earnestly seeking to promote and perpetuate, and which, through his direction of the Department of Commerce, he has done so much to aid, is widely diffused prosperity, percolating through all sections of the country, benefiting the people, adding to the contents not merely of their pocketbooks, but of their lives.

Statement issued after eating breakfast with Candidate Hoover.

Charles Evans Hughes

OCTOBER 24, 1928.

The political aims of the great majority of the American people may be summed up broadly in the words prosperity and progress....  Prosperity feeds upon itself....  Delegations from foreign lands are visiting us to ascertain our secret....  I believe that it is very important in maintaining the confidence that underlies our prosperity that we should retain a Republican administration.  Every one must realize, as it seems to me, that if the election results in a Republican victory business all through the country will be heartened and stimulated.

At Chicago

Irving Fisher

JULY 29, 1928.

Mr. Hoover is a practical economist and one to whom is due more largely than to any other one man improvement in our prosperity....  Mr. Hoover knows as few men do the terrible evils of inflation and deflation, and the need of avoiding both if business and agriculture are to be stabilized.


Roger W. Babson

SEPTEMBER 17, 1928.

If Smith should be elected with a Democratic Congress, we are almost certain to have a resulting business depression in 1929....  The election of Hoover and a Republican congress should result in continued prosperity for 1929.

Address to the National Business Congress, Wellesley Hills, Mass.

Charles Curtis

OCTOBER 5, 1928.

Stick to the full dinner pail.  You have been enjoying Republican prosperity.  If you want to continue the prosperity of the administrations of Calvin Coolidge, vote for Hoover.

At Gary, Ind.

MELLON APPEALS                         

New York Times,
OCTOBER 12, 1928.

Herbert Hoover

AUGUST 11, 1928.

Unemployment in the sense of distress is widely disappearing....  We in America today are nearer to the final triumph over poverty than ever before in the history of any land.  The poor-house is vanishing from among us.  We have not yet reached the goal, but given a chance to go forward with the policies of the last eight years, and we shall soon with the help of God be in sight of the day when poverty will be banished from this nation.  There is no guarantee against poverty equal to a job for every man.  That is the primary purpose of the economic policies we advocate.

Speech accepting the Republican nomination, Palo Alto, Calif.

SEPTEMBER 17, 1928.

When we [the Republican Party] assumed direction of the Government in 1921 there were five to six million unemployed men upon our streets. Wages and salaries were falling and hours of labor increasing....  The Republican Administration at once undertook to find relief to this situation.  At once a nationwide employment conference was called....  Within a year we restored these five million workers to employment.  But we did more; we produced a fundamental program which made this restored employment secure on foundations of prosperity; as a result wages and standards of living have during the past six and a half years risen to steadily higher levels.

This recovery and this stability are no accident.  It has not been achieved by luck.  Were it not for sound governmental policies and wise leadership, employment conditions in America today would be similar to those existing in many other parts of the world.

Campaign Address
Newark, N. ].

OCTOBER 22, 1928.

Prosperity is no idle expression.  It is a job for every worker; it is the safety and safeguard of every business and every home.  A continuation of the policies of the Republican party is fundamentally necessary to the future advancement of this progress and to the further building up of this prosperity.

Campaign Address
Madison Square Garden

OCTOBER 6, 1928.

As never before does the keeping of our economic machine in tune depend upon wise policies in the administrative side of the government.

Campaign Address
Elizabethton, Tenn.

JULY 27, 1928.

The outlook of the world today is for the greatest era of commercial expansion in history. The rest of the world will become better customers.

Speech at San Francisco


Ayn Rand


“Do you remember?  It was the time when you did not hear from me for three years, Dagny, when I took over my father’s business, when I began to deal with the whole industrial system of the world, it was then that I began to see the nature of the evil I had suspected, but thought too monstrous to believe.  I saw the tax-collecting vermin that had grown for centuries like mildew on d’Anconia Copper, draining us by no right that anyone could name—I saw the government regulations passed to cripple me, because I was successful, and to help my competitor because they were loafing failures—I saw the labor unions who won every claim against me, by reason of my ability to make their livelihood possible—I saw that any man’s desire for money he could not earn was regarded as a righteous wish, but if he earned it, it was damned as greed—I saw the politicians who winked at me, telling me not to worry, because I could just work a little harder and outsmart them all.  I looked past the profits of the moment, and I saw that the harder I worked, the more I tightened the noose around my throat.  I saw that my energy was being poured down a sewer that the parasites who fed on me were being fed upon in their turn, that they were caught in their own trap—and that there was no reason for it, no answer known to anyone, that the sewer pipes of the world, draining its productive blood, led into some dank fog nobody had dared to pierce, while people merely shrugged and said that life on earth could be nothing but evil.  And then I saw that the whole industrial establishment of the world, with all of its magnificent machinery, its thousand-ton furnaces, its transatlantic cables, its mahogany offices, its stock exchanges, its blazing electric signs, its power, its wealth—all of it was run, not by bankers and boards of directors, but by any unshaved humanitarian in any basement beer joint, by any face pudgy with malice, who preached that virtue must be penalized for being virtue, that the purpose of ability is to serve incompetence, that man has no right to exist except for the sake of others.”

...“I came here in order to bring up my sons as human beings.  I would not surrender them to the educational systems devised to stunt a child’s brain, to convince him that reason is impotent, that existence is an irrational chaos with which he’s unable to deal, and thus reduce him to a state of chronic terror.  You marvel at the difference between my children and those outside, Miss Taggart?  Yet the cause is so simple.  The cause is that here, in Galt’s Gulch, there’s no person who would not consider it monstrous ever to confront a child with the slightest suggestion of the irrational.”

...“Fear?  Yes—but it was more than fear.  It was the kind of emotion that makes men capable of killing—when I thought that the purpose of the world’s trend was to destroy these children, that these three sons of mine were marked for immolation.  Oh yes, I would have killed—but whom was there to kill?  It was everyone and no one, there was no single enemy, no center and no villain, it was not the simpering social worker incapable of earning a penny or the thieving bureaucrat scared of his own shadow, it was the whole of the earth rolling into an obscenity of horror, pushed by the hand of every would-be decent man who believed that need is holier than ability, and pity is holier than justice.”

Atlas Shrugged,
in the chapter
in which the rich who went on strike set up a utopia firmly based on self-responsibility


(Without this, too many losers would have too many excuses, and even legitimate excuses have a price.)


It is enough to mention the commercial crises that by their periodical return put on its trial, each time more threateningly, the existence of the entire bourgeois society.  In these crises a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed.  In these crises there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity—the epidemic of overproduction.  Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why?  Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce.  The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property.  The conditions of bourgeois society are too narrow to comprise the wealth created by them.  And how does the bourgeoisie get over these crises?  On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones.  That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.

—Karl Marx and Friedrich Engels,
The Communist Manifesto


(No doubt, back then plenty of other people, who couldn’t seem dangerous or subversive, noticed this, too. Not only that, at that time it probably would have been very difficult to come up with enough sophistry to “prove” that as long as the government had something to do with what led up to each crash, it wouldn’t have happened but for the government, and, therefore, it was the government’s fault.)



What happened next was totally unexpected.  Wall Street as we have known it for nearly 100 years, collapsed in a matter of days.

Crash: the Next Great Depression,
The History Channel

MARCH 25, 2008
(eleven days after the collapse of Bear Stearns)

Our financial market approach should include encouraging increased capital in financial institutions by removing...  regulatory impediments to raising capital.

—John McCain

MARCH 30, 2008

In Treasury Plan, a Reluctant Eye Over Wall Street

[Oversight] authority would be limited, doing virtually nothing to regulate the many new financial products whose unwise use has been a culprit in the current financial crisis....

The Treasury says that it and other federal regulators still believe a principle it enunciated a year ago, “that market discipline is the most effective tool to limit systemic risk.”...

Some industry representatives embraced the plan, reflecting its laissez-faire origins....

[T]he Paulson proposal would not give regulators new powers over other investment banks.

New York Times

OCTOBER 26, 2009

So, let me ask you.  How do you answer the billionaire George Soros, who writes in “The Financial Times” yesterday that, even if you have good ideas [for regulation], this is the wrong time, that the business doesn’t have its footing yet, the financial sector is still in a state of flux, and you need to wait?

John King,
Anderson Cooper 360,

FEBRUARY 17, 2010

The bottom line is that banks like Goldman have learned absolutely nothing from the global economic meltdown.  In fact, they’re back conniving and playing speculative long shots in force — only this time with the full financial support of the U.S. government.  In the process, they’re rapidly re-creating the conditions for another crash, with the same actors once again playing the same crazy games of financial chicken with the same toxic assets as before.

...“I said, ‘Fuck it, let’s make some money,’” he recalls.  “I absolutely did not believe in the fundamentals of any of this stuff.  However, I can get on the bandwagon, just so long as I know when to jump out of the car before it goes off the damn cliff!”

This is the very definition of bubble economics — betting on crowd behavior instead of on fundamentals.

—Matt Taibbi,
Wall Street’s Bailout Hustle,
Rolling Stone


Wall Street Finds Religion

—Charles R. Morris,
The Two Trillion Dollar Meltdown,
title of the chapter about Reaganist deregulation

(Of course, in plenty of situations, the tenets of this religion would offend a lot of people, but they could always be treated like heretics, and those who are held accountable for blaming victims, etc., could seem to be martyrs.)

(speaking of vital rationality...)

Panic: in economics, acute financial disturbance, such as widespread bank failures, feverish stock speculation followed by a market crash, or a climate of fear caused by economic crisis or the anticipation of such crisis.

—Britannica Online


In manufacturing, the market price is set by the smartest guy with the best, cheapest production process.  In securities markets, the price is set by the dumbest guy with the most money to lose.

—William Heyman,
former head of market regulation at the SEC,
Why Derivatives Rattle the Regulators,
Institutional Investor


For shares to truly mirror gas molecules, trading would have to be costless, instantaneous, and continuous.  In fact, it is lumpy, expensive, and intermittent.  Trading is also driven by human choices that often make no sense in terms that [computerized] models understand.  Humans hate losing money more than they like making it.  Humans are subject to fads.  Even the most sophisticated traders exhibit herding behavior.  Leland’s and Rubinstein’s portfolio insurance implicitly assumed that when their automated selling routines kicked in, buy-side computers would coolly apply options math to calculate rational purchase prices.  But in real life, the buy-side was just a crowd of human traders screaming, “Holy s—!  Everybody’s selling like crazy!  Dump everything!”  In other words, as all three of this chapter’s crises [the crash of 1987, the collapse of Long Term Capital Management, and, in 1994, the crash of opaque extremely complicated impossible-to-value computer-generated collateralized mortgage obligations, a form of collateralized debt obligation, i.e. THIS ALREADY HAPPENED] suggest, in real financial markets, air molecules have a disturbing knack for clumping on one side of the room.

—Charles R. Morris,
The Two Trillion Dollar Meltdown

(Just imagine what all-American people would say if some models from any other social science left out such important facts!)


These three changes—[computerized] increasing complexity, loss of control [of traders by employers], and lack of regulation—would become the most important issues in financial markets during the [1990s].  Financial instruments would become more complex and, increasingly, would be used to avoid legal rules; control and ownership of companies would move further apart, leaving individual managers unable to monitor increasingly aggressive employees; and markets would become deregulated, as prosecutors continued to avoid complex financial  cases, and accounting firms and banks were insulated from private lawsuits.

...(A one-standard-deviation event happened about a third of the time.  A two-standard-deviation event happened only about five percent of the time.  And so on.)  According to the computer models, the 1987 stock market  rash was a vastly improbable twenty-standard-deviation event, less likely than a hundred perfect storms.

...On February 4, 1994, Alan Greenspan and the Federal Reserve raised overnight interest rates from 3 percent to 3.25 percent.  To most investors, the change seemed insubstantial.  Greenspan’s reasoning was sound....

But behind the scenes, it was pure panic.

...By early 1994, hundreds of money managers and treasurers... had secretly bet hundreds of billions of dollars using strategies and instruments...  Although the trades were complex, most of them—at their core—were bets that interest rates would stay low.

...Why didn’t investors learn about the losses that day?  One reason was that the bets involved largely unregulated and undisclosed financial instruments, such as structured notes, swaps, and other derivatives.  Another was that many fund managers simply hid the losses, not only from investors, but from their bosses as well.  After February 4, those managers were scurrying like a colony of ants whose cover had just been kicked over.  Given the complexity of the instruments and the lack of regulation, they would be able to hide for quite a while.  The public would discover the losses only in dribs and drabs during the year.

...Various sources estimated the total damage to the bond market at around $1.5 trillion.  That made the rate hike more costly than any other market debacle since the 1929 stock-market crash.

...Fund managers all seemed to be buying the same financial instruments...

...And [hedge fund managers] all made the same bets.

Unfortunately, the Federal Reserve didn’t understand hedge funds very well, and didn’t realize how much financial institutions had borrowed to bet on interest rates using unregulated derivatives.  The spread of this leverage was the reason the Fed’s rate hike had such far-reaching, unanticipated effects.

...A few prescient firms abandoned their bets just before February 4, 1994.  For example, AIG Financial Products made more than $1 billion on derivatives between 1988 and 1991, but AIG’s chairman, Maurice “Ace” Greenberg, decided in 1993 that his firm was taking too many risks, and the head of AIG Financial Products, Howard Sosin, left the firm, along with a reported $200 million in compensation.  Sosin had joined AIG from Drexel Lambert in 1987...

In 1995, Brandon Becker and Jennifer Yoon, of the Securities and Exchange Commission, compiled a list of institutions that had lost money in the various new financial instruments during the previous year.  The list included virtually every kind of institution, from every sector of the economy.

...The list was impossible to ignore.  The stories of investors losing money on derivatives were not isolated incidents; they evidenced an epidemic.  Just a few years earlier, structured notes did not exist, and complex CMOs were merely the wacky idea of a few traders.  But by 1994, the financial innovations of Bankers Trust, First Boston, and Salomon Brothers had spread so far that it was hard to find someone who didn’t own these instruments.

...The media portrayed wealthy bankers as villains.  And the inevitable cartoons appeared, one picturing a man in a three-piece suit, holding a briefcase and a cup for begging, next to a sign that said “Dabbled in Derivatives.”  Another had a caption, “Hey, there’s always tomorrow.  Well, unless you’re in derivatives.”  For the 1994 holiday season, Trimedia, a public relations firm, sent out a card depicting Santa and hid reindeer crashing into a building, with the legend, “Don’t worry.  He’s got a derivatives contract from Bankers Trust.  Happy Holidays!”

...After several years of being spoiled by skyrocketing bonuses, bankers threw tantrums when they learned overall pay would be down 20 percent for 1994.

...As the year closed, with Orange County filing for bankruptcy, investors found little comfort, except perhaps the hope that government officials would punish the wrongdoers and create a new regulatory framework to stop the wave of undisclosed risk-taking of 1994 from spreading even further.  Instead, the regulators were about to do precisely the opposite.

...[Wendy] Gramm wrote an opinion piece in the Wall Street Journal entitled “The Good Derivatives Do,” in which she argued, “If another major default or market shock occurs, we must all resist the urge to find scapegoats, or to over-regulate what we just do not understand.”  [But aren’t Populists supposed to get outraged at claims like that like that, fulminating that this looks down on ordinary people and takes for granted that they must submit to the intellectuals?  Of course, the main villains of Populist conspiracy theories are bankers, and this shows how easily bankers could manipulate the masses by posing, resentfully and emotionalistically as the righteous and smart ones, since it’s so easy to manipulate abstractions!]

...The financial virus spreading through the markets, which previously had involved primarily new risks, broke through a significant new barrier [in the new millennium]  and began to involve new methods of deceit.  This was the beginning of the time Alan Greenspan was referring to when he told the Senate Banking Committee in 2002, “An infectious greed seemed to grip much of out business community.”

...There were three key lessons from the various international crises.  First, governments had created incentives for investors to take on excessive risks by bailing out investors or companies in times of crisis.  The Mexico and East Asia bailouts, and the indirect role the Federal Reserve Bank of New York played in the private bailout of Long-Term Capital, led investors to take on additional risks under the assumption that governments would help rescue them.  These bailouts created moral hazard among investors—the taking of excessive risks in the presence of insurances.

Second, it became increasingly difficult to measure and monitor cross-border risks.  Barings and Long-Term Capital collapsed primarily because their owners improperly assessed their risks.  Even the sophisticated models at Long-Term Capital did not work as predicted.  Moreover, many investors did not realize the extent of their exposure to particular risks, such as the risk of currency devaluation in Latin America and East Asia.

Third, financial derivatives were now everywhere—and largely unregulated. Increasingly, parties were using financial engineering to take advantage of the differences in legal rules among jurisdictions, or to take new risks in new markets.  In 1994, The Economist magazine noted, “Some financial innovation is driven by wealthy firms and individuals seeking ways of escaping from the regulatory machinery that governs established financial markets.

...The Clinton administration glossed over the key problem with the bailout: the message it sent to investors who had foolishly pumped money into Mexico without much thought.  The bailout defined “moral hazard”—if investors could count on the government to provide insurance, by stepping in if the market crashed, they undoubtedly would increase their bets.

...The rating agencies—which had performed so abysmally in the United States, downgrading Orange County only after it was obviously bankrupt—did not warn investors about the various financial problems in East Asia.

...Under the “gentle pressure” of the Federal Reserve, which was concerned that [Long Term Capital Management]’s failure might trigger a sequence of global defaults that would cause the entire banking system to unravel, LTCM’s lenders met in the offices of the New York Federal Reserve Bank.  Fed chief Alan Greenspan already had remarked that the financial crisis surrounding LTCM was the worst he had ever experienced; Treasury Secretary Robert Rubin said in September [1998] that “the world is experiencing its worst financial crisis in half a century.”

...From Mexico to Barings to East Asia to LTCM, the international financial crises of the mid-to-late 1990s had become progressively more complex and far-reaching.

...Fed Chairman Alan Greenspan opposed any additional regulation.  Although Greenspan publicly mouthed support for laws prohibiting financial fraud, in private he was willing to disclose his true opinion—that he believed there was no need for anti-fraud rules, either.  In one lunch meeting in his private dining room at the Fed, he told a senior regulator, “We will never agree on the issue of fraud, because I don’t think there is a need for laws against fraud. Greenspan said his experience trading commodities early in his career had persuaded him that anti-fraud rules were unnecessary, because participants in the markets inevitably would discover fraud.  Market competition alone—without any regulation—was sufficient, because no one would do business with someone who had a reputation for engaging in fraud.

...Sophisticated companies were using various types of swaps, as well as Special Purpose Entities [businesses contrived to be “partners”] and new financial instruments called credit derivatives, to take undisclosed risks and hide losses [around 2000].

...These deals, blatantly advantaged a few Enron employees at the expense of shareholders, nevertheless were disclosed in Enron’s financial statements, and although these disclosures were garbled and opaque, anyone reading them carefully would have understood the basics of Enron’s self-dealing or, at a minimum, would have been warned to ask more questions before buying the stock.  To the extent Enron, its accountants, and bankers were aggressive in transactions designed to inflate profits or hide losses, they certainly weren’t alone.  Dozens of other companies were doing precisely the same kinds of deals—some with Enron—and all had strong arguments that their deals were legal, even if they violated common sense.

In sum, relative to many of its peers, Enron was a profitable, well-run and law-abiding firm.  That does not mean Enron was a model of corporate behavior; it obviously was not.  But it does explain how Enron could have happened....  Enron’s dealings were not illegal; they were alegal; and Enron was a big story, not in itself, but as a symbol of how fifteen years of changes in law and culture had converted reprehensible actions into behavior that was outside the law and, therefore, seemed perfectly appropriate, given the circumstances.

...According to efficient-market theory, it shouldn’t have mattered where JEDI appeared in Enron’s annual report.  As long as it was disclosed somewhere, the value of JEDI—positive or negative—should have been reflected in Enron’s stock price.  In other words, Enron’s executives didn’t need to feel any qualms about burying JEDI in a footnote, because sophisticated investors would spot the disclosure and buy or sell Enron stock until its price was accurate.  Thus, efficient-market theory reinforced a culture of following the bare letter of the law in complex financial transactions.  Doing more simply wasn’t necessary.

For efficient-market theorists, Enron was a poster child: a profitable, flexible, and efficient firm operating in new, unregulated markets.  On December 9, 1997, economist Myron Scholes, then at Long-Term Capital Management, delivered a lecture in Stockholm, Sweden, after he received the Alfred Nobel Memorial Prize in Economic Sciences for his work in options pricing.  He singled out two companies—General Electric and Enron—as having the ability to outcompete existing financial firms, and noted, “Financial products are becoming so specialized that, for the most part, it would be prohibitively expensive to trade them in organized markets. According to Scholes, Enron’s trading of unregulated over-the-counter energy derivatives was a new model that someday would replace the organized securities exchanges.

...The legal changes of 1994 and 1995—including restrictions on securities lawsuits, incentives for companies to compensate executives with stock options, and various forms of deregulation—enticed Enron executives to take advantage of accounting rules, and contributed to the company’s developing mercenary culture.

...Enron’s dealings in JEDI and Chewco later horrified many individual investors, but the truth was that they were arguably legal, not especially unusual, mostly disclosed, and largely irrelevant to Enron’s collapse.  There were enough key details about JEDI and Chewco in the footnotes to Enron’s financial statements to warn off any investor who read them.

...Fastow was obviously good at structured finance.  In 1999, he received a major award for excellence as a CFO, which stressed his “unique financing techniques.”

...Investors, prosecutors, plaintiffs’ lawyers, and members of Congress have blamed the various direct participants in Enron’s collapse.  But, in reality, it was difficult to assign blame to any of these parties, and it was likely that most—if not all—would avoid successful prosecution for fraud.  Instead, it was the parties outside Enron that were most to blame: the credit-rating agencies that had propped up Enron’s credit rating and then pulled out the carpet at the end; the investors who had not scrutinized Enron’s public filings; and the legislators and regulators who not only had passed the rules Enron used to rationalize its dealings, but then stood by for years while those rules distorted the dominant corporate and financial culture so much that Enron’s dealings, which should have been reprehensible, became permissible.

...The last ones to react, in every case, were the credit-rating agencies, which downgraded companies only after the bad news was in, frequently just days before a bankruptcy filing.  Nevertheless, investors continued  to trust the credit-rating agencies, and regulators continued to rely on them.

...banks were in by far the best position to monitor corporate loans.  They were the firms that had made the loans, they had relationships with the borrowers, and they uniquely had access to the data and personnel necessary to keep tabs on the company’s prospects.

...Howard Davies, chairman of the British Financial Services Authority, warned that credit derivatives were being used for “regulatory arbitrage,” to shift risks from regulated banks to less-regulated insurers, and that “we may be creating, not reducing market instability.”

...Synthetic CDOs might seem like unusual or esoteric side bets, but by 2002 they were a mainstat of corporate finance.  In 2001, banks created almost $80 billion of Synthetic CDOs.

...Credit default swaps had pushed risks to unknown places, and now CDOs were moving them underground.  Howard Davies, the British financial regulator, relayed a comment, from an investment banker, that Synthetic CDOs were “the most toxic element of the financial markets today.”

...Thus, American Express joined the long list of supposedly sophisticated financial experts that had been unable to assess the risk and value of their own investments in derivatives: Bankers Trust, Salomon Brothers, Askin Capital Management, Barings, Kidder Peabody, Enron, and so on.  Like many of these institutions, American Express’ investments in CDOs had not appeared on its balance sheet.

...The only good news was that banks appeared to be immunized from the banking panics that had plagued the U.S. markets during the nineteenth and twentieth centuries.  Individuals could feel safe about their bank deposits, even if they were only earning one percent interest.  The related bad news was that banks were no longer the major source of risk, and because banks didn’t bear the risk associated with loans, they had stepped up their lending.  The risks previously associated with the banking system were now buried somewhere deep in the books of insurance companies, industrial companies, pension funds, and perhaps even a municipality or two. Individuals depended on those institutions for their livelihoods.

...In recent years, the markets have withstood losses at Bankers Trust, Procter & Gamble, Orange County, Barings, Long-Term Capital Management, Enron, and others, largely because these collapses did not create widespread panic among investors.  The same has been true during 2002: investors have been upset but calm, even as they have learned how irrational and opaque the markets have become.  The regulators, too, have remained composed, in part because banks, which now use credit derivatives to reduce their risks, have virtually eliminated the threat of a system-wide banking collapse, the primary concern of regulators in the United States.  Unfortunately, as banks pass credit risks along to insurance firms and industrial companies, these other companies become de facto banks, and the rules and oversight that have kept banks safe for decades do not cover these firms.  If investors ever come to understand the hidden risks within these non-bank firms, they might very well panic.

...A few government officials expressed worry about derivatives, ranging from Senator Joseph Lieberman, who said he would hold a hearing on the need for derivatives regulation, to Treasury Secretary Paul O’Neill, who suggested that derivatives regulation needed modernizing.  As Secretary O’Neill put it, “In this case, I think it’s fair to say it may be that our rules and regulations have gotten behind practices.”

...In other words, gatekeepers [bankers accountants lawyers and credit rating agencies] do not survive based on their reputation alone, contrary to the assumptions of many academics.  Economists have assumed that gatekeepers would not take advantage of investors, because if they did so their reputations would suffer and no one would use their services.  That view has proven as naïve as the belief that a $20 bill lying on the ground was not really there [since if it were a self-interested person would have taken advantage of the opportunity to pick it up].  During the past fifteen years, gatekeeper institutions have performed unimaginably disreputable acts, but their reputations have suffered only a little—and their profits have not suffered at all.  Gatekeepers will continue to earn substantial profits as long as rules supporting them persist.  For example, no matter how poor the credit-rating agencies are at predicting defaults, companies still will pay them for ratings, because legal rules effectively require them to do so. (Recall the importance to Alien Wheat and CSFP of obtaining an AAA rating.)  The same is true, to a somewhat lesser extent, for other gatekeepers.

Frank Partnoy,
Infectious Greed,
How Deceit and Risk Corrupted the Financial Markets


Then disaster struck.  By early 1994, Fed chair Alan Greenspan was starting to fear that the US economy was overheating after several years of loose monetary policy. On February 4, 1994, he suddenly raised the federal funds rates by 25 basis points from 3 to 3.25 percent. The move, which came amid other unexpected economic data, stunned the markets, triggering a sharp fall in bond prices.  It also caused carnage in the derivatives world.  So many of the derivatives deals made in 1992 and 1993 were premised on rates continuing to fall, and with the sudden hike, these deals produced enormous losses.

...Meanwhile, the mainstream American and British media unleashed a torrent of criticism.  Adam Smiths Money World declared that derivatives might be the financial equivalent of the next space shuttle disaster.  Fortune published a cover with the word “derivatives” on the jaws of a giant, terrifying alligator.  “Financial derivatives are tightening their grip on the global economy,” the article ominously warned, “and nobody knows how to control them.”

Shortly thereafter, the General Accounting Office issued a highly critical 196-page study on the state of the derivatives world, with conclusions diametrically opposed to those of the [permissive] G30 report.  Derivatives trading, it declared, was marked by “significant gaps and weaknesses” in risk management that created a wider systemic risk.  Indeed, the dangers were so high, it argued, that derivatives might even end up producing a debacle as bad as the savings and loan shock.  There was an “immediate need” for Congress to step in, Charles Bowsher, head of the GAO, urged.

Democrats and Republicans swiftly responded, and by the summer of 1994, no fewer than four bills proposing regulations had been submitted to Congress.  “The GAO and I see eye-to-eye on the need for increased disclosure, for improved supervision, and for stronger international coordination of derivatives regulation,” declared Texas Democrat Henry Gonzalez, who was chairing the banking panel and backing one bill.  Edward Markey, a Massachusetts Democrat who was chairing a congressional panel overseeing the securities markets, warned, “The question now is no longer whether regulatory or legislative changes will be made... but what form such changes should take.”

Derivatives traders were horrified.

...History was not on their side: on almost every occasion during the previous hundred-odd years, lawmakers had responded to financial scandal by producing a new set of government rules.  Yet [Libertarian] Brickell was a zealot; in his eyes, the battle in Washington was not about mere business, it was an ideological fight of the highest order.

The sheer intensity of his lobbying mission irritated many.  Christopher Whalen, a director at Whalen Co., a Washington lobbying firm, observed at the time: “[The International Swaps and Derivatives Association] came to Washington telling everyone they’re stupid.  Their message was that everything is okay [in derivatives]—a blanket statement, boom.  That strategy has convinced everybody in Washington that they have something to hide.”

...By end of 1994, the ISDA campaign had been so brilliantly effective that all four of the antiderivatives bills in Congress were shelved.  Henry Gonzalez, the sponsor of one of them, commented in his colorful Texan style about the effort, “It’s been like a coyote out in the brush country baying to the moon at midnight.  Only the poor ranchers waking up would know that was the coyote, as far as being heard.”  It was an extraordinary victory for ISDA—one of the most startling triumphs for a Wall Street lobbying campaign in the twentieth century.

—Gillian Tett,
Fool’s Gold,
How the Bold Dream of a Small Tribe at J.P. Morgan
Was Corrupted by Wall Street Greed
and Unleashed a Catastrophe


In his prescient 1999 classic, The Return of Depression Economics, Krugman surveyed the economic crises that had swept across Asia and Latin America and pointed out that they were a warning for all of us: like diseases that have become resistant to antibiotics, the economic maladies that caused the Great Depression were making a comeback.

—Paul Krugman,
The Return of Depression Economics and the Crisis of 2008,
publishers’ notes

(If that’s the case then we all know who are the germs who’ve become able to get through the old defenses!)


For the first time, finance ministers realized how deeply the lethal new financial instruments from America had penetrated global investment portfolios; and how far their own banks, especially in Europe, had gone in emulating the American giants.

...The Lehman failure, however, was a watershed.  Not even Paulson or Bernanke suspected how deeply its securities were marbled through the world financial system.  [The more that a “financial products” company does this, the more likely it would be that the government would bail it out since its bankruptcy would mean great “systemic risk” to the world’s financial system!]

...All three of those trends—the shift of financial transactions to unregulated markets, the steady worsening of the Agency problem [decisions about one’s money being made by employees, investment professionals, etc.], and the pretense that all of finance can be mathematized [with computers]—flowed together to create the great credit bubble of the 2000s.

—Charles R. Morris,
The Two Trillion Dollar Meltdown



OCTOBER 23, 2008

Mr. GREENSPAN.  Well, I think you are going to find, Congressman, that many of those complex derivatives are gone, never to be seen again.

Mr. LYNCH.  Well, I wish I could—I wish I could believe that, but we have short memories around here, and as soon as the urgency and this crisis is over, folks, you know, there’s good money being made on those and so there’s an incentive there to push them out into the market.  So I wish I could believe you that these things won’t come back, but I want to make sure.

Because it will be to the Congress’ detriment, as well as to the financial industry, if these things do come back or if we have another failure like we are having right now.

Mr. GREENSPAN. Well, I certainly have no objection to regulating those instruments.  I mean, structured investment vehicles, for example, my puzzlement is who is buying those things?  And if you are going to tell me that there are a lot of instruments out there which make no sense, I agree with you.

Mr. LYNCH.  Interestingly enough, 72 percent of them were held by hedge funds, the smartest people in the room, we are told.

Mr. GREENSPAN.  That is what I find most disturbing.  We are not dealing with people who are dumb.  We are dealing with, by far, the most sophisticated, thoughtful people about the way markets work who created the major problems.

testimony before Congress


MARCH 13, 2009

In my view, 2009 is shaping up to be a very dangerous year.  I think we need to expect that we will face waves of challenges.

...The IMF research of some 122 financial and economic crises shows that turnaround can’t happen unless you clean up the bad assets and recapitalize the banks, and if you don’t take on the banking issue, the stimulus is just like a sugar high.  It pushes some energy through the system, but then you get the letdown unless you reopen the credit markets.

... I think that there is more work to do in terms of reconciling the bad assets and putting capital in.  All you have to do is look at the markets we are in, the equity markets for financial institutions.

There’s a range of possibilities from the good bank/bad bank to some of the steps that Britain and the U.S. took to try to isolate assets on the balance sheet with, it’s called a “ring-fence” [inaudible at 26:18] guarantee.  I think the U.S. has tried to come up with an in-between idea with this structure of getting private capital in, financing most likely from the Federal Reserve, and this is—while it is easy to write op-ed pieces on this, it is hard to do, in fact, because you have to decide if you are going to buy the bad assets, at what price, and you have to be ready to recapitalize the institutions, and you need—if you are going to buy the assets, you need up-front money, and frankly, most parliaments and congresses have been weary of giving money to banks.

So that is one reason why I think you see people coming up with ideas like you’ve have had in the U.S., but they still have to be executed.  So I think by making the point about the sugar high, what I am saying is, is that you have to see these as partnership efforts.  The stimulus alone won’t be enough.

—Robert Zoellick,
President of the World Bank

MARCH 20, 2009

First, as I’ve said in the past, this isn’t about fairness.  There’s nothing remotely fair about using taxpayer money to rescue a free-market financial system from the mistakes of the financiers.  But the reality is that we can punish the bankers or we can save the banking system, but we can’t do both at the same time.

...During a financial crisis, fairness is a luxury we cannot afford.  During the 1930s, bankers and financiers lost everything, but the outcome—a decade-long depression—was hardly fair to the ordinary American.  The key question is not whether something is fair, but whether it helps get us through this mess faster and at a lower cost.

—Steven Pearlstein,
Washington Post



NOVEMBER 16, 2008

“This is part of this myth of deregulation,” [Phil Gramm] said in the interview.  “By and large, credit-default swaps have distributed the risks.  They didn’t create it.  The only reason people have focused on them is that some politicians don’t know a credit-default swap from a turnip.”

—Eric Lipton and Stephen Labaton,
New York Times

(But aren’t Populists supposed to get outraged at claims like that like that, fulminating that this looks down on ordinary people and takes for granted that they must submit to the intellectuals?  Once again, this shows how easily bankers could manipulate the masses by posing, resentfully and emotionalistically as the righteous and smart ones, since it’s so easy to manipulate abstractions!)

FEBRUARY 17, 2009

That [investment banking] model is gone, because it’s been proven without a question of a doubt in the last year that a rumor can put any of these firms at peril.  You certainly saw it with us.  You saw it with Lehman.  Even the firm that I had the most admiration for, Goldman Sachs, found itself the victim of rumors.  And Merrill Lynch did.  And both of these firms had to convert over the weekend to banks, had to have infusions of capital because they couldn’t withstand the self-fulfilling prophecies of the rumors.

...I guess it’s a question of overexuberance and getting caught up in thinking the good times are here forever and they never are.

—Alan “Ace” Greenberg,
started at Bear Stearns in 1949,
CEO from 1978 to 1993,
chairman of the board from 1985 to 2001,
Chairman of Bear’s executive committee at the time of its collapse

OCTOBER 6, 2008

So today we start with the case of Lehman Brothers, a venerable investment house that sank into insolvency while others were being thrown Federal lifelines.  One lesson from Lehman’s demise: words matter.  Rumors and speculative leaks fed the panic and accelerated a flight of confidence in capital from that company.

Words matter here as well.  Look at the TV monitors.  As we watch them, the markets are watching us.  In this volatile environment, unsupported allegations, irresponsible disclosures can inflame fears and trigger market stampedes.

—Republican Congressman Jim Davis,
opening statements,
hearings on “The Causes and Effects of the Lehman Brothers Bankruptcy,”
in which he stood up for Wall Street
against accusations of unfettered greed 

(So, it seems that the problem isn’t greed and dirty tricks that we could get under control through regulation, but greed and dirty tricks that we couldn’t get under control through regulation, and, therefore, we should have faith in The System!)


There’s something we don’t model appropriately, which is a profoundly important statistic, and that is the unchanging, innate character of human nature.  The behavior of what we are observing in the last seven weeks is identical to what we saw in 1998, what we saw in the stock market crash of 1987, I suspect what we saw in the land boom collapse of 1837, and certainly 1907.

—Alan Greenspan



MARCH 16, 2008

The most credible explanation of why risk management based on state-of-the-art statistical models can perform so poorly is that the underlying data used to estimate a model’s structure are drawn generally from both periods of euphoria and periods of fear, that is, from regimes with importantly different dynamics....  But these models do not fully capture what I believe has been, to date, only a peripheral addendum to business-cycle and financial modeling – the innate human responses that result in swings between euphoria and fear that repeat themselves generation after generation with little evidence of a learning curve.

—Alan Greenspan

(But, of course, “the unchanging, innate character of human nature,” and “the innate human responses,” imply that we’re just going to have to take this as a given, which means that we must re-engineer the innate human responses of feeling devastated about the consequences of things going wrong, “God, grant me serenity to accept the things I cannot change, courage to change the things I can, and wisdom to know the difference....   Accepting hardship as a pathway to peace; Taking as Jesus did this sinful world as it is not as I would have it....”  (Yet we could add this to our economic models, let them eat Prozac, etc.)  Those who’d consider it monstrous ever to treat market forces as irrational, would  consider it equally monstrous ever not to accept active human nature, or ever to accept passive human nature that gets in the way.)




—Lehman Brothers,
on a barbecue apron
(“High yield” is also high risk, e.g. junk bonds,
and, therefore, high excitement,
the Milken mystique.)

APRIL 2, 2009

Wall Street firms make money when people are in pain.  I don’t know if that is what is happening, but if the question is whether banks would converge on a dying body—the answer is, Absolutely.

—Frank Partnoy,
law professor at the University of San Diego,
once traded credit-derivative contracts at Morgan Stanley,
regarding the failure of AIG


When asked in a 1991 survey by the Library of Congress and the Book-of-the-Month Club what the most influential book in the respondent’s life was, Rand’s Atlas Shrugged was the second most popular choice, after the Bible.

Wikipedia webpage on Ayn Rand


According to National Institutes of Mental Health figures, 20,000,000 people or approximately 15% of the U.S. adult population suffers from a serious depressive disorder in any given year.

—John H. Greist, MD and Thomas H. Greist, MD,
Antidepressant Treatment—the Essentials

(What would be a rational and natural assessment of that, “Choose to have a positive and productive outlook, or you’ll be a loser.  That’s life.”?  What must one accept in order not to seem evil?)




In the early 1950s, Greenspan began an association with famed novelist and philosopher Ayn Rand that would last until her death in 1982.  He wrote for Rand’s newsletters and authored several essays in her book Capitalism: The Unknown Ideal.  Rand stood beside him at his 1974 swearing-in as Chair of the Council of Economic Advisers.

Wikipedia webpage on Alan Greenspan

(After all, anyone who suffers from any resulting recession or depression, either would take response-ability for their own welfare, or would be what Ayn Rand called “looters,” the evil.)

JULY 16, 2002 infectious greed seemed to grip much of our business community....  It is not that humans have become any more greedy than in generations past.  It is that the avenues to express greed had grown so enormously.

Alan Greenspan

Alan Greenspan

(the year in which thalidomide was discovered to cause birth defects)

The market value of a brokerage firm is even more closely tied to its good-will assets.  Securities worth hundreds of millions of dollars are traded every day over the telephone.  The slightest doubt as to the trustworthiness of a broker’s word or commitment would put him out of business overnight.

...Government regulation is not an alternative means of protecting the consumer.  It does not build quality into goods, or accuracy into information.  Its sole “contribution” is to substitute force and fear for incentive as the “protector” of the consumer.  The euphemisms of government press releases to the contrary notwithstanding, the basis of regulation is armed force.  At the bottom of the endless pile of paperwork which characterizes all regulation lies a gun.

...The guiding purpose of the government regulator is to prevent rather than to create something.  He gets no credit if a new miraculous drug is discovered by drug company scientists; he does if he bans thalidomide.  Such emphasis on the negative sets the framework under which even the most conscientious regulators must operate.  The result is a growing body of restrictive legislation on drug experimentation, testing, and distribution.  As in all research, it is impossible to add restrictions to the development of new drugs without simultaneously cutting off the secondary rewards of such research—the improvement of existing drugs.  Quality improvement and innovation are inseparable.

...The hallmark of collectivists is their deep-rooted distrust of freedom and of the free-market processes; but it is their advocacy of so-called “consumer protection” that exposes the nature of their basic premises with particular clarity.  By preferring force and fear to incentive and reward as a means of human motivation, they confess their view of man as a mindless brute functioning on the range of the moment, whose actual self-interest lies in “flying-by-night” and making “quick kills.”  They confess their ignorance of the role of intelligence in the production process, of the wide intellectual context and long-range vision required to maintain a modern industry.  They confess their inability to grasp the crucial importance of the moral values which are the motive power of capitalism.  Capitalism is based on self-interest and self-esteem; it holds integrity and trustworthiness as cardinal virtues and makes them pay off in the marketplace, thus demanding that men survive by means of virtues, not of vices.  It is this superlatively moral system that the welfare statists propose to improve upon by means of preventive law, snooping bureaucrats, and the chronic goad of fear.

—The Assault on Integrity,
which is included in Ayn Rand’s book, Capitalism: the Unknown Ideal



Precisely because the [ratings] agencies had diligently posted the details about how their models worked on the net, bankers found it easy to comb through the models looking for loopholes to exploit.  And by 2005, they were doing quite a bit of that.  Whenever a banker had an idea for a new innovation, it would be run through the agency models to see what rating the product was likely to earn.  If it looked too low or high, the design would be tweaked.  The aim was to get as high a rating as possible, with the highest level of risk—so that the product could produce all-important higher investor returns.  In banking circles, the game was known as “ratings arbitrage.”

—Gillian Tett,
Fool’s Gold

OCTOBER 2, 2008

Another important requirement for the proper functioning of market competition is also not often, if ever, covered in lists of factors contributing to economic growth and standards of living: trust in the word of others.  Where the rule of law prevails, despite everyone’s right to legal redress of a perceived grievance, if there is more than a small fraction of outstanding contracts that require adjudication, court systems would be overwhelmed, as would society’s ability to be governed by the rule of law.  This implies that in a free society governed by the rights and responsibilities of its citizens, the vast majority of transactions must be voluntary, which, of necessity, presupposes trust in the word of those with whom we do business—in almost all cases, strangers.  It is remarkable that large numbers of contracts, especially in financial markets, until recent advances in information technology, were initially oral, confirmed by a written document only at a later time, even after much price movement.  It is remarkable how much trust we have in the pharmacist who fills the prescription ordered by our physician.  Or the trust we grant to automakers that their motor vehicles will run as certified.  We are not fools.  We bank on the self-interest of our counterparties with whom we trade to foster and protect their reputation for producing quality goods and services.  Just contemplate how little division of labor and wealth creation would be engendered if that were not the prevailing culture in which we lived.

Wealth creation requires people to take risks, and thus we cannot be sure our actions to enhance our material wellbeing will succeed.  But the greater our ability to trust in the people with whom we trade, that is, the more enhanced their reputation, the greater the accumulation of wealth.  In a market system based on trust, reputation has a significant economic value.  I am therefore distressed at how far we have let concerns for reputation slip in recent years.

Reputation and the trust it fosters have always appeared to me to be the core attributes required of competitive markets.  Laws at best can prescribe only a small fraction of the day-by-day activities in the marketplace.  When trust is lost, a nation’s ability to transact business is palpably undermined.  In the marketplace, uncertainties created by not always truthful counterparties raise credit risk and thereby increase real interest rates and weaker economies.

During the past year, lack of trust in the validity of accounting records of banks and other financial institutions in the context of inadequate capital led to a massive hesitancy in lending to them.  The result has been a freezing up of credit.

—Alan Greenspan,
Sandra Day O’Connor Project Conference



(Of course, in any business interaction, the degree to which reputation would protect a party would be the degree to which he has the power to choose other alternatives.)

OCTOBER 6, 2008

None of us ever gets the opportunity to turn back the clock.  But with the benefit of hindsight, would I have done things differently?  Yes, I would have.

—Dick “There’s a Reason Why I’m Not Called Richard” Fuld,
CEO, Lehman Brothers,
testimony before Congress

(That’s the problem with trust.  After you’ve already made a commitment, you can’t turn back the clock and undo it.  After you’ve already abused someone’s trust, you can’t turn back the clock and undo that.)

FEBRUARY 12, 2009

What we have created in this world is an aura around the credit rating agencies about certification from them is the Good Housekeeping seal of approval.  I will tell you the record of a lot of the forecasters of ratings have not been distinguished.  They never were.

—Alan Greenspan,

FEBRUARY 17, 2009

The extraordinary risk management discipline that developed out of the writings of the University of Chicago’s Harry Markowitz in the 1950s, produced insights that won several Nobel Prizes in Economics.  It was widely embraced not only by academia but also by a large majority of financial professionals and global regulators.

But in August 2007, the risk management structure cracked.  All of the sophisticated mathematics and computer wizardry essentially rested on one central premise: that enlightened self interest of owners and managers of financial institutions would lead them to maintain a sufficient buffer against insolvency by actively monitoring and managing their firms’ capital and risk positions.  When in the summer of 2007 that premise failed, I was deeply dismayed.

—Alan Greenspan,
speech to the Economic Club of New York

APRIL 21, 2009

Credit ratings, cited as one of the primary credit protections in TALF as currently configured, have been proven to be of questionable value.  The wholesale failure of the credit rating agencies to rate adequately such securities is at the heart of the securitization market collapse, if not the primary cause of the current credit crisis.

—Neil M. Barofsky,
special inspector general for the bailout program,
his second report to Congress

(Any self-help advisor could tell you the problems with trusting.)

JANUARY 7, 1973

It is very rare that you can be unqualifiedly bullish as you can be now.

—Alan Greenspan


The growing economic interdependence of our world is creating a ripple effect of good news for those countries committed to sensible policies—policies which allow the magic of the marketplace to create opportunities for growth.

—Ronald Reagan


OCTOBER 1, 1990

What Gutfreund said has become a legend at Salomon Brothers and a visceral part of its corporate identity.  He said: “[Let’s play] One hand [of Liar’s Poker], one million dollars, no tears.”

...The final two words of his challenge, “no tears,” meant that the loser was expected to suffer a great deal of pain but wasn’t entitled to whine, bitch, or moan about it.  He’d just have to hunker down and keep his poverty to himself.

...And if you wanted to show off, Liar’s Poker was the only way to go.  The game had a powerful meaning for traders.  People like John Meriwether believed that Liar’s Poker had a lot in common with bond trading.  It tested a trader’s character.  It honed a trader’s instincts.  A good player made a good trader, and vice versa.  We all understood it.

—Michael Lewis,
Liar’s Poker: Rising Through the Wreckage on Wall Street


Unfortunately, many of the “entrepreneurs” attracted by these changes were actually con men intent upon draining as much money from the system as they could and then moving on.  Simply put, Congress and Bank Board officials failed to add into the deregulation equation almost everything mankind has learned about human nature since the dawn of recorded history.  Greed, avarice, ambition, and ego dictate that some things in the social order just can’t be left on the honor system, and at the top of that list is the care and feeding of other people’s money.

...A few minutes into his soliloquy Brenneke told the court that both he and Rupp had been involved in a secret October 1980 mission in which then-vice presidential candidate George Bush, Reagan-Bush campaign manager William Casey, Bush aide Donald Gregg (also a former CIA official), and the campaign’s foreign policy advisor Richard Alien flew to Paris to meet with Iranian officials.  Brenneke said the group offered the Iranians the following deal: The group would agree to sell the terrorists forty million dollars’ worth of arms in exchange for releasing the 54 American hostages then being held by Iran.  There was a catch though—the Iranians would get the arms only if they released the hostages after the November election (which pitted Ronald Reagan and Bush against incumbent Jimmy Carter).  The Republicans feared that if Carter could obtain release of the hostages he could swing the vote away from front runner Ronald Reagan, thus giving Carter a so-called October Surprise.  Brenneke said that Rupp flew the BAC-111 jet that carried Casey to the Paris meeting.

...While Heinrich Rupp was busy coaxing money out of Aurora Bank, Michael Rapp [memoirs titled Wall Street Swindler, worked with the Mafia] also decided that taking out loans—or getting a share of loans that he arranged for others—might be a promising way to make ends meet.  Clearly something new and exciting was happening in the once-stodgy world of savings and loans in 1984 and 1985, something that would welcome his kind of expertise.

...[Federal Home Loan Bank board chairman Ed] Gray received a letter from respected economist Alan Greenspan telling him he should stop worrying so much.  Greenspan wrote that deregulation was working just as planned, and he named 17 thrifts that had reported record profits and were prospering under the new rules.  Greenspan wrote the letter while he was a paid consultant for Lincoln Savings & Loan of Irvine, CA, owned by a Charles Keating, Jr., company.  Four years after Greenspan wrote the letter to Gray, 15 of the 17 thrifts he’d cited would be out of business and would cost the FSLIC $3 billion in losses.

...In early 1986, in a speech in Boston, Milken responded to the attack, “We’re faced with change....  Our regulators have resisted this change, our politicians have resisted this change... not willing to recognize... that many of the savings and loans, who have used different investment techniques, and different ways to build their capital structures, will be the survivors and the strong savings and loans of the future.”

But examiners and auditors actually looking at the books of some of these companies didn’t like what they saw.  Junk bonds were acting like steroids, artificially pumping up a company’s bulk without creating any lasting substance.  Some securities analysts stopped following these firms because they couldn’t figure out how strong they really were.  “It’s like Kremlinology,” an auditor told the Wall Street Journal about Southmark.  “The thing is so hopelessly complex that nobody on the outside can figure out what’s going on.”

...“Clearly the Bank Board [in Washington] shot us in the back while we were doing battle to protect the taxpayers,” Black would later tell Congress.

About this time a meeting was held at the White House with select members of the White House staff and a handful of Republican congressmen.  One of those attending the meeting later told us he was astounded to hear a close advisor to President Ronald Reagan conclude that the best cure for the thrift industry was to “keep moving in the direction of the Charles Keatings.  They’re the only hope.”

...The 1980s were truly over.  And what an ironic conclusion.  The taxpayers who had so overwhelmingly welcomed Reagan’s laissez faire deregulation philosophy in 1980 (“get government off the backs of business”) discovered in 1990 that they were among the largest creditors in the bankruptcy of Drexel Burnham Lambert, the company that through its junk bond and hostile takeover strategies had been the corporate engine, and the ethical model, of the eighties.

...Placing blame for the savings and loan scandal will occupy philosophers and historians, economists and political analysts for decades.  Inflation in the late seventies did it.  Recession in the early eighties did it.  Corrupt politicians did it.  Deregulation did it.  Regulatory accounting principles did it.  Stupid regulators did it.  Greed did it.  Fraud did it.  The Mafia did it.  Deposit insurance did it.  The C1A did it.

...The Reagan revolution—at least as far as S&L deregulation was concerned—had been a huge failure and a national and international disgrace.  The economic policies of the Reagan White House, steeped in a simplistic view of the free market, had resulted in the nationalization of one-third of the U.S. thrift industry.

...When Ed Gray tried to clamp down on renegade thrifts, the industry and Congress fought his every move.  Like rebellious teenagers bristling over parental intrusion, thrift lobbyists and many thrift executives complained bitterly that Gray was cramping their style, that he didn’t understand them, that he was old-fashioned.

...But we were told repeatedly by regulators and even Justice Department officials that the Mafia, the mob, organized crime, the syndicate, whatever label you choose, had not and could not infiltrate the thrift industry in any serious way.  Well, we asked, then why had these people shown up in our investigation?...

...About bank deregulation, U.S. Attorney Joe Cage said, “Some of the same people who took down savings and loans, they’re out in the securities business and banking, already in place, just waiting for Congress to abolish the Glass-Steagall Act.  When it happens I’m afraid they’ll take the banks just like they did the savings and loans.”

In 1989 we met with some congressional staff members and asked why, in the face of the thrift disaster, Washington continued to march in the direction of bank deregulation.  The answer was a blunt one.  Congressmen and senators, a staffer told us, sit on the banking committees so they can attract campaign contributions from the banking industry.  “We have a lot of bankers willing to pay mightily for bank deregulation.  Now just who do you have in mind that would pay against it?”  Five hundred billion dollars later—and it was business as usual.

...But besides the criminality, we discovered a pervasive feeling that anything not actually illegal or specifically prohibited by thrift regulation was fair game.  Traditional standards of right and wrong were ignored.  Too many people in the thrift industry simply sold their fiduciary responsibilities to the highest briber.  Whatever had infected Wall Street in the 1980s found its way into S&Ls as well, a burning greed that consumed long-standing American ethical standards.

—Stephen Pizzo, Mary Fricker, and Paul Muolo,
Inside Job: The Looting of America’s Savings and Loans

SEPTEMBER 29, 1992 escalating cycle in which regulatory initiatives inspire financial innovations that trigger further regulations that in turn give rise to additional rounds of innovation.  At the end of this cycle, the rule books are thicker, but the capital markets often restructure themselves to block the regulatory regimes’ goals.

Joseph A. Grundfest,
former SEC commissioner,
Yale Law Journal

FEBRUARY 6, 2009

Although few crises seem inevitable, this is so only in retrospect: over-optimism in inferring the future from good times will surely recur.  Moreover, all solutions carry costs, and one must proceed in the anticipation that for every regulation there will be an innovation [to get around it].  Nevertheless, new policy frameworks and institutions can mitigate future crises—at least until the next paradigm shift [the next “New Economy,” or next rationale to cheer Ayn Randism, or even the usual responding to objectors with, “Stop your whining, resentment, and control tactics!”]—in much the same way that New Deal deposit insurance and macroeconomic management brought a measure of stability to the post-war period.

—International Monetary Fund,
Initial Lessons of the Crisis

MARCH 28, 2009

History is littered with post-crisis regulations.  If there are undue restrictions on the operations of businesses, they may view it to be their job to get around them, and you sow the seeds of the next crisis.

—Liz Ann Sonders,
chief investment analyst for Charles Schwab


I’m concerned that now anything called a derivative will be considered inherent evil in Congress.  It is sort of like a fire hose: In the wrong hands, it is dangerous.

—Christopher Cox,
Orange County Register


It would be a serious mistake to respond to these developments by singling out derivative instruments for special regulatory treatment.  Such a response would create artificial incentives to structure transactions on the basis of regulatory rules rather than of the economic characteristic of the transactions themselves.

—Alan Greenspan

NOVEMBER 30, 1995

Removal of these financing constraints would promote the safety and soundness of broker-dealers by permitting more financing alternatives and hence more effective liquidity management....  In the case of broker-dealers, the Federal Reserve Board sees no public policy purpose in it being involved in overseeing their securities credit.

—Alan Greenspan,
testimony before the House Subcommittee on Telecommunications and Finance,
Committee on Commerce




Imagine a country where the top 1 percent of families have about the same amount of wealth as the bottom 95 percent....  It’s not Mexico....  Imagine a country where wages have fallen for average workers, adjusting for inflation, despite significant growth in the economy.  Real per capita GDP (gross domestic product) rose 33 percent from 1973 to 1994, yet real weekly wages fell 19 percent for nonsupervisory workers, the vast majority of the workforce.  It’s not Chile.  Imagine a country where the stock market provides “payoffs for layoffs.”  Imagine a country where workers are downsized while corporate profits and executive pay are upsized.  The average CEO (chief executive officer) of a major corporation was paid as much as 40 factory workers in 1965, 60 factory workers in 1978, 122 factory workers in 1989, and 173 factory workers in 1995....  It’s not England.  Imagine a country where living standards are falling for younger generations despite the fact that many households have two wage earners, have fewer children, and are better educated than their parents....  It’s not Russia.

—Holly Sklar


The United States is the only advanced society in which productivity has been steadily rising over the past two decades [the “trickle-down” era] while the incomes of the majority—eight out of ten—have stagnated or fallen.

—John Gray,
False Dawn: the Delusion of Global Capitalism


Portray Big Business in a flattering light.  Sponsors are adamant about this....  Ditto for Prudential Insurance: “A positive image of business and finance is important to sustain on the air.”  If a businessman is cast as the bad guy, it must be clear that he is an exception, and the script must also include benevolent business folk so as not to leave the wrong impression.

Unreliable Sources: A Guide to Detecting Bias in News Media

SEPTEMBER 16, 1998
(in the week before Long Term Capital Management collapsed)

Market pricing and counterparty surveillance can be expected to do most of the job of sustaining safety and soundness.

—Alan Greenspan,
testimony before the House Committee on Banking and Financial Services

OCTOBER 1, 1998

I know of no set of supervisory actions we can take that would prevent people from making dumb mistakes.  I know of no piece of legislation that could be passed by the Congress which would require us to prevent them from making dumb mistakes.

—Alan Greenspan,
testimony before the Committee on Banking and Financial Services,
regarding the proposed regulation of derivatives,
due to the collapse of LTCM,
led by heroes of laissez faire,
and topic of Roger Lowenstein’s book
When Genius Failed

OCTOBER 1, 1998

Had the failure of LTCM triggered seizing up of markets, substantial damage could have been inflicted on many market participants, including some not directly involved with the firm, and could have potentially impaired the economies of many nations, including our own.

—Alan Greenspan,
testimony before the Committee on Banking and Financial Services


THE COMMITTEE TO SAVE THE WORLD : The inside story of how the Three Marketeers [Greenspan Rubin and Summers] have prevented a global economic meltdown—so far

Time magazine,


I view derivatives as time bombs, both for the parties that deal in them and the economic system.

...Another problem about derivatives is that they can exacerbate trouble that a corporation has run into for completely unrelated reasons.  This pile-on effect occurs because many derivatives contracts require that a company suffering a credit downgrade immediately supply collateral to counter-parties.  Imagine then that a company is downgraded because of general adversity and that its derivatives instantly kick in with their requirement, imposing an unexpected and enormous demand for cash collateral on the company.  The need to meet this demand can then throw the company into a liquidity crisis that may, in some cases, trigger still more downgrades.  It all becomes a spiral that can lead to a corporate meltdown.

Derivatives also create a daisy-chain risk that is akin to the risk run by insurers or reinsurers that lay off much of their business with others.  In both cases, huge receivables from many counter-parties tend to build up over time.  A participant may see himself as prudent, believing his large credit exposures to be diversified and therefore not dangerous.  However under certain circumstances, an exogenous event that causes the receivable from Company A to go bad will also affect those from Companies B through Z.

In banking, the recognition of a “linkage” problem was one of the reasons for the formation of the Federal Reserve System.  Before the Fed was established, the failure of weak banks would sometimes put sudden and unanticipated liquidity demands on previously-strong banks, causing them to fail in turn.  The Fed now insulates the strong from the troubles of the weak.  But there is no central bank assigned to the job of preventing the dominoes toppling in insurance or derivatives.  In these industries, firms that are fundamentally solid can become troubled simply because of the travails of other firms further down the chain.

—Warren Buffett,
Berkshire Hathaway annual report for 2002

MAY 31. 2002

In principle, the losses will be spread across a broader range of investors than in past debt crunches, suggesting risks have been well diversified and the financial system is secure.  In practice, financial market and corporate innovation during the 1990s has meant it is impossible to be sure, a source of concern to financial regulators.

—Stephen Fidler and Vincent Boland,
Financial Times

AUGUST 7, 2002

The award is in recognition of his outstanding contribution to global economic stability and the benefit that the UK has received from the wisdom and skill with which he has led the US Federal Reserve board.

—Treasury Department,
on why Britain was about to make Alan Greenspan a knight,
just after he saved the world from the tech bubble bursting,
by creating the housing bubble

OCTOBER 6, 2008

We simply left the monetary floodgates open too far and too long in the period 2002 to 2005.  During this period, mortgage rates got as low as 2-1/2 percent, and families got an inflated sense of their capacity to afford housing.

—Robert F. Wescott,
President, Keybridge Research, LLC
Testifying about Lehman Brothers’ bankruptcy
before the House Committee on Oversight and Government Reform

DECEMBER 30, 2008

The market cannot operate without significant regulation, and dreaded government turns out to be the only institution with the capacity to repair things when market actors are routed from the field and sit, petrified, at the sidelines.

E. J. Dionne, Jr
Washington Post Op-Ed columnist

MAY 8, 2003

Critics of derivatives often raise the specter of the failure of one dealer imposing debilitating losses on its counterparties, including other dealers, yielding a chain of defaults.  However, derivative markets participants seem keenly aware of the counterparty credit risks associated with derivatives and take various measures to mitigate those risks.

—Alan Greenspan,
remarks to the Chicago Conference on Bank Structure and Competition


The argument in this book is that the conventional wisdom is wrong.  Instead, any appearance of control in today’s financial markets is only an illusion, not a grounded reality.  Markets have come to the brink of collapse several times during the past decade, with the meltdowns related to Enron and Long-Term Capital Management being prominent examples.  Today, the risk of system-wide collapse is greater than ever before.  Although a handful of regulators and Wall Street managers have known about some of the systemic problems, individual investors have been largely oblivious to the fact that they have dodged, not a bullet, but a nuclear meltdown.  The truth is that the markets have been, and are, spinning out of control.

—Frank Partnoy,
Infectious Greed


It is impossible to exaggerate the sheer idiocy of the financial machinery of the 2000s.  To start with, leverage is extremely high—in the shadow banking world, often as much as 100 to 1.  Moreover, the favored instruments, such as collateralized debt obligations (CDOs), are highly illiquid, or hard to sell in a pinch.  Even worse, the preferred method for financing positions is in overnight and other short-term money markets, so there are horrendous asset-liability mismatches.  Then those highly leveraged, illiquid, short-term-funded CDOs and similar securities are built from securities that themselves carry a high risk of default, primarily sub-prime and so-called “Alt-A,” or undocumented, mortgages.  Finally, a new class of arcane credit derivatives, completely outside the purview of regulators, ensures that almost all bank portfolios are “tightly coupled” as engineers say, so failures in any part of the system will quickly propagate through the rest.  An evil genie could not have designed a structure more prone to disaster.

...That is the Greenspan Put [an option that guarantees that the owner could sell at a certain price no matter what]:  No matter what goes wrong, the Fed will rescue you by creating enough cheap money to buy you out of your troubles.

...All in all, it’s hard to imagine a worse outcome—the United States, the “hyperpower,” the global leader in the efficiency of its markets and the productivity of its businesses and workers, hopelessly in hock to some of the world’s most unsavory regimes.  But that’s where a quarter-century of diligent sacrifice to the gods of the free market has brought us.  It’s a disgrace.

—Charles R. Morris,
The Two Trillion Dollar Meltdown

(Just imagine how turbulent The Age of Turbulence would have been without the “resiliency” that resulted from the Greenspan Put!  Of course, those who believe in laissez faire economics could use this massive failure to their advantage, by saying that as long as the bankers don’t make this many stupid mistakes, we need not fear another economic meltdown.  Not only that, if the guv’mint regulated to the degree necessary not to trust that they wouldn’t do so many stupid things, that would look like heinous dictatorship!  And, of course, to keep creating enough cheap money to buy the poor or middle class out of whatever problems they recklessly create, would seem to be the very picture of un-American stupidity.)

APRIL 3, 2009

BILL MOYERS: You talk about the Bush administration.  Of course, there’s that famous photograph of some of the regulators in 2003, who come to a press conference with a chainsaw suggesting that they’re going to slash, cut business loose from regulation, right?

WILLIAM K. BLACK: Well, they succeeded.  And in that picture, by the way, the other—three of the other guys with pruning shears are the...

BILL MOYERS: That’s right.

WILLIAM K. BLACK: They’re the trade representatives.  They’re the lobbyists for the bankers.  And everybody’s grinning.  The government’s working together with the industry to destroy regulation.  Well, we now know what happens when you destroy regulation.  You get the biggest financial calamity of anybody under the age of 80.

—Bill Moyers’ interview with William K. Black,
investigator of the savings and loan scandal of the late 1980s,
and author of The Best Way to Rob a Bank Is to Own One


Hughes indicates that the motto of the professions must be credat emptor (“buyer trust”), as opposed to the motto of the marketplace, caveat emptor (“buyer beware”).  For example, where the layperson would rarely question the prescription of a physician, the same person might be very cautious when buying a used car and might have it thoroughly tested by an independent mechanic before making a purchase.

—Armando T. Morales and Bradford W. Sheafor,
Social Work, a Profession of Many Faces

(So which are Wall Street professionals, with whom all are to practice “due diligence” a la Madoff’s would-be customers, professionals, or used car salesmen?)

JANUARY 8, 2009

The changes, [W. J. “Billy” Tauzin, Republican former congressman who runs the Pharmaceutical Research and Manufacturers of America] said in an interview, are an effort to move away from the industry’s “slash-and-burn kind of policy” in response to previous regulatory and legislative efforts.

—Washington Post

JANUARY 10, 2009

SERWER (of Fortune magazine): I think that’s right.  Allan, the Madoff scandal was global, as we’ve been saying.  And it sort of mirrors the economic meltdown generally.  Is that a coincidence?

SLOAN (also of Fortune magazine): No.  There’s an old expression on Wall Street that says the worse the merchandise is, the farther from home you sell it.  As we’ve seen for a year now, really horrible mortgage securities and weird stuff have shown up in places like Iceland and all over the world and devastated places that don’t even know where the United States is.

—CNN Special,
Madoff, Secrets of a Scandal


DECEMBER 4, 2004

the global financial system... has become a giant money press as America’s easy-money policy has spilled beyond its borders...  This gush of global liquidity has not pushed up inflation.  Instead, it has flowed into share prices and houses around the world, inflating a series of asset-price bubbles.

The Economist magazine

JULY 16, 2003

What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so.

—Alan Greenspan

FEBRUARY 17, 2009

Even with the breakdown of self regulation, the financial system would have held together had the second bulwark against crisis, our existing regulatory system functioned effectively.  But under crisis pressure it, too, failed.

—Alan Greenspan,
speech to the Economic Club of New York

(That’s why the regulatory system failed?)

SPRING, 2007

6. What is Alan Greenspan’s theory of the “traumatized worker”?  What has traumatized workers, and how does this hold wages down?

Greenspan’s theory is a sort of extension of the Marxian theory of the [Reserved Army of unemployed workers who’d reduce wages by competing for jobs].  Greenspan was trying to explain why high productivity growth and low unemployment (below what was thought to be the “natural rate”) were not resulting in wage-led inflation.  His answer was that workers were “traumatized.”  [He testified before Congress on July 22, 1997, that this is due to “a heightened sense of job insecurity.”]  Fear of outsourcing, foreign competition, etc., had led workers to re-evaluate the expected probability of (a) being laid off, and (b) finding re-employment at a commensurate level of compensation.  Thus workers were willing to work harder (increase productivity) without demanding higher wages.  [Yet chances are that Marx didn’t describe this with a word as inflammatory and graphic as “traumatized.”]

Economics 204 Spring 2007 Notes
University of Massachusetts

FEBRUARY 23, 2004

American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.

—Alan Greenspan

OCTOBER 5, 2004

Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.

—Alan Greenspan

FEBRUARY 12, 2009

We could have basically clamped down on the American economy, generated a 10 percent unemployment rate.  And I will guarantee we would not have had a housing boom, a stock market boom or indeed a particularly good economy either.

—Alan Greenspan,

FEBRUARY 14, 2005

George W. Bush could well turn out to be the best president in recent history.... Supply-side pro-growth economics couldn’t ask for a better champion—nor could any American.

—Arthur Laffer
Supply-Side Economist

OCTOBER 26, 2005

This economy is strong; it’s going to stay strong.

—George W. Bush

NOVEMBER 15, 2005

SARBANES: Warren Buffett has warned us that derivatives are time bombs, both for the parties that deal in them and the economic system.  The Financial Times has said so far, there has been no explosion, but the risks of this fast growing market remain real.  How do you respond to these concerns?

BERNANKE. I am more sanguine about derivatives than the position you have just suggested.  I think, generally speaking, they are very valuable.  They provide methods by which risks can be shared, sliced, and diced, and given to those most willing to bear them.  They add, I believe, to the flexibility of the financial system in many different ways.  With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.  The Federal Reserve’s responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well managed and do not create excessive risk in their institutions.

SARBANES. In a recent article in The New York Times, they stated, “Seven years ago, Wall Street’s top bankers were caught off guard by the near collapse of the Long Term Capital hedge fund.  Since then, the number and influence of hedge funds have ballooned.  The hedge fund explosion has prompted concerns that if a big bet goes wrong, regulators and banks will again be caught up in a collapse.”  My recollection is that the Federal Reserve Bank of New York was convening all night, all weekend meetings at the time of Long Term Capital Management, putting enormous pressure on financial institutions to pick up on it in order to prevent the very collapse that is mentioned here.  How do you respond to this concern?  Equally sanguine?

BERNANKE. I think it is important not to be complacent.


BERNANKE. Not to be complacent.  It is important for the Federal Reserve to be aware of what is going on in the market, particularly working through the banks, which are the counterparties of a lot of hedge funds, to understand their strategies and their positions.  Nevertheless, broadly speaking, my understanding is that the hedge fund industry has become more sophisticated, more diverse, less leveraged, and more flexible in the years since LTCM.  So again, while it is very important to understand that industry, and particularly to make sure that the banks, are dealing in appropriate ways with hedge funds, my sense on that is that they are a positive force in the American financial system.

SARBANES. Do you think these issues contain a sufficient danger in them that it would warrant the Fed undertaking a special examination of these questions if you were to become the Chairman?  Because if this went bad on your watch, I mean, there could be tremendous consequences, obviously.

BERNANKE. I think it is useful to have informal contacts to try to understand what is going on in the market, and the Federal Reserve has various mechanisms for learning about this market; in particular, working through the various counterparties that deal with hedge funds.

SARBANES: Well, I commend this area to you as one that should have some focus of your attention.  Otherwise, it may well come back to haunt you.

Confirmation Hearings of Ben Bernanke


APRIL, 2006

[The dispersion of credit risk through the financial innovations] has helped to make the banking and overall financial system more resilient.

—International Monetary Fund

MAY 7, 2006

But I am still going to talk the facts, the facts are stubborn things, and the American people have got to know that this economy is strong and we’ve got a plan to keep it strong.


JUNE, 2006

I believe these proposals [to regulate derivatives] could have significant unintended consequences for the risk-management functions that the markets – whether over-the-counter or exchange-based – perform in our economy.  It is my view that absent a clearly demonstrated need, we should be wary of major changes to the manner in which we regulate our derivatives markets.

The importance of derivatives markets in the U.S. economy should not be taken lightly, as businesses, financial institutions, and investors throughout the economy rely on these markets to manage their risks and to protect themselves from market volatility.  These markets have contributed significantly to our economy’s ability to withstand and respond to various market stresses and imbalances.

Although I have not studied this issue in great detail, it has been my experience that increasing reporting requirements does not affect market fundamentals; rather they are influenced by supply and demand factors.

—Henry Paulson,
at his confirmation hearings


Yet the economy righted itself [after 9/11]. Industrial production, after just one more month of mild decline, bottomed out in November.  By December the economy was growing again, and jobless claims dropped back and stabilized at their pre-9/11 level.  The Fed did have a hand in that, but it was only by stepping up what we’d been doing before 9/11, cutting interest rates to make it easier for people to borrow and spend.

I didn’t mind seeing my expectations upset, because the economy’s remarkable response to the aftermath of 9/11 was proof of an enormously important fact: our economy had become highly resilient [with the help of the Greenspan Put].  What I’d said so optimistically to the Senate Banking Committee turned out to be true.  After those first awful weeks, America’s households and businesses recovered.  What had generated such an unprecedented degree of economic flexibility? I asked myself.

...This book is in part a detective story.  After 9/11 I knew, if I needed further reinforcement, that we are living in a new world—the world of a global capitalist economy that is vastly more flexible, resilient, open, self-correcting, and fast-changing than it was even a quarter century earlier.

—Alan Greenspan
The Age of Turbulence, introduction

It did not go without notice that Ayn Rand stood beside me as I took the oath of office in the presence of President Ford in the Oval Office.  Ayn Rand and I remained close until she died in 1982 [of heart failure and lung cancer due to smoking], and I’m grateful for the influence she had on my life.  I was intellectually limited until I met her.  All of my work had been empirical and numbers-based, never values-oriented.  I was a talented technician, but that was all.  My logical positivism had discounted history and literature—if you’d asked me whether Chaucer was worth reading, I’d have said, “Don’t bother.”  Rand persuaded me to look at human beings, their values, how they work, what they do and why they do it, and how they think and why they think.  This broadened my horizons far beyond the models of economics I’d learned.  I began to study how societies form and how cultures behave, and to realize that economics and forecasting depend on such knowledge—different cultures grow and create material wealth in profoundly different ways.  All of this started for me with Ayn Rand.  She introduced me to a vast realm from which I’d shut myself off.

(For example, in Rand’s Atlas Shrugged, in the chapter ANTI-LIFE, hero Dagny Taggart is talking with her sister-in-law Cherryl, who came from an impoverished background and has a Populist faith that whether you’re rich or poor you deserve it.  Dagny says, “...And then you’ll see what motive is the opposite of charity,” Cherryl asks, “What?” and Dagny answers, “Justice, Cherryl.”  You’d seem to deserve whatever you get.  Some cultures grow and create material wealth like this, since if they cared about what people actually did deserve, they could get what they wanted by playing the victim role.

Soon after, she gets into a fight with her drunken husband.  She runs away.  A social worker sees her and says, “It’s a disgrace to come to such a state... if you society girls had something to do besides indulging your desires and chasing pleasures, you wouldn’t be wandering, drunk as a tramp, at this hour of the night... if you stopped living for your own enjoyment, stopped thinking of yourself and found some higher—”.  Cherryl responds by saying, “No!  No!  Not your kind of world!”  Then, she runs away and kills herself by jumping off a bridge.  As Greenspan testified before Congress on October 23, 2008, “As I wrote last March: those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity, myself especially, are in a state of shocked disbelief,” and that social worker could have told Cherryl some objective facts that could have disproved her assumptions about self-interest.  Presumably, the dynamic greedy people on Wall Street would be the opposite of anti-life.)

...By the time I joined Richard Nixon’s campaign for the presidency in 1968, I had long since decided to engage in efforts to advance free-market capitalism as an insider, rather than as a critical pamphleteer.  When I agreed to accept the nomination as chairman of the president’s Council of Economic Advisors, I knew I would have to pledge to uphold not only the Constitution but also the laws of the land, many of which I thought were wrong.

—Alan Greenspan
The Age of Turbulence


Congressman Henry Reuss thought Ford, like Herbert Hoover in 1930, would let us slide into a depression, and was quoted saying, “The President is getting the same kind of economic advice that Herbert Hoover was given [and not only in 1930].”

—Alan Greenspan
The Age of Turbulence

FEBRUARY 23, 2009

[Regarding why the recession got so bad so fast, worldwide]  We set off the sticks of dynamite, but a lot of people had tinderboxes under their houses.

—Simon Johnson,
professor at the Sloan School of Management,
Massachusetts Institute of Technology


[under Soviet central planning] Missing is the ultimate consumer, who in a centrally-planned economy is assumed to passively accept the goods planning agencies order produced.

—Alan Greenspan,
The Age of Turbulence


 not active : acted upon

definition of passive,
Merriam Webster dictionary

JUNE 24, 2009

What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain—an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

...Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and irrationality are greater.

—Matt Taibbi,
The Great American Bubble Machine,
Rolling Stone

MAY 4, 2009

It really does all come down to jobs.  We have an unemployment rate of eight and a half percent.  On Friday we will get the unemployment report for the month of April.  And we know, Anderson, no matter how these things look, the bottom line is we are going to lose hundreds of thousands of more jobs.

We may see the unemployment rate edge closer to nine percent on Friday.  And ultimately, until we’ve got more people working and having an income, we won’t get that consumer confidence back, and that is what this economy relies upon.

So we are nowhere out of the woods, Anderson.  We just got, as you mentioned earlier, green shoots, some glimmers of hope in the economy.

—Ali Velshi,
Anderson Cooper 360,

MAY 9, 2009

“When fear starts, bitterness kicks in,” said Noonan, whose neighbor, a radiologist, was rejected for a job at Home Depot.  He described laid-off former colleagues as “mad at life. They’re at home, they’re mailing out résumés, and they’re miserable.”

Washington Post,
In Toledo, Downturn Empties Offices

MAY 5, 2009

Banks critical to recovery: Bernanke said his economic forecast hinges on a “gradual repair” of the financial system: If banks and financial conditions relapse, the economic recovery could be even more drawn out.


MARCH 2, 2007

That’s [the global economy] as strong as I’ve seen it than at any time during my business career.

—Henry Paulson
Treasury Secretary

MARCH 5, 2007

He should be judged very, very well as far as the economy is concerned.  We’re in a long sustained period of economic growth.

—John McCain on George W. Bush

MARCH 31, 2008

…corrective actions would also influence market behavior, which likely (and hopefully) would limit the need to take formal corrective actions. If corrective actions are necessary, they should, whenever possible, be focused broadly across particular types of institutions or asset classes. Such actions should generally not focus on specific individual institutions.

—The Department of the Treasury,
Blueprint for a Modernized Financial Regulatory Structure

(Hopefully?  And how could law enforcement not be focused on specific individual institutions?)

SEPTEMBER 17, 2008


It’s only when the tide goes out that you learn who’s been swimming naked.

—Warren Buffett


“Bernie was not the brightest bulb,” recalls Far Rockaway classmate Mike Gandin, who became an attorney and a Madoff victim.

After Bernie was branded the “Ponzi King” by the tabloids, two other classmates, John Avirom, who was on the swim team with Bernie and became an immigration lawyer, and Peter Zaphiris, who became a businessman, got in touch and reminisced about the Bernie they remembered.

“When the shit hit the fan,” says Zaphiris, “I e-mailed Johnny to chuckle about what happened with Bernie, because we’d carry on in school about how he was the dumbest white man we ever met in our lives—excuse me for the pejorative.  It’s not fair to say he wasn’t bright.  The guy was a dummy in high school.  If you said, ‘Hey, Bernie, how are you?’ his head would tilt to the side—he had a nervous tick—he’d squint, one eye would flutter, and he’d grunt, ‘Hello.’  He was rather laconic, didn’t have much to say, never told a joke or said, ‘Look at her—she’s some piece of ass,’ or anything like that.  That was pretty much Bernie.  He was just no place.”

...Business boomed, with Madoff nearing 10 percent of the volume of the NYSE in the 1990s. Madoff had become Wall Street’s 70th largest firm during the Clinton years, doing as much as 25,000 trades daily.  In that same time frame, Bernie was named to the chairmanship of Nasdaq’s board of directors, and Peter served on the board for several years.

...After Bernie was arrested, Levy quoted his late father [New York commercial real estate mogul and Madoff victim Norman Levy] as declaring, “If there’s one honorable person, it’s Bernie.”

...Bernie told the gathering, “Wall Street is one big turf war... by benefiting one person you’re disadvantaging another person, and the basic concept of Wall Street, which sometimes regulators lose sight of, as do the academics, is it’s a for-profit enterprise,” which got a big laugh from the audience.  He noted that Wall Street “is one of the few industries where the cost of doing business had dramatically increased” for firms like Madoff, and “the cost of regulation has dramatically increased.  Now, no one is going to run a benefit for Wall Street”—more laughter—“so whenever I go down to Washington and meet with the SEC and complain to them that the industry is either overregulated or the burdens are too great, they all start rolling their eyes.”

He revealed that “the big money on Wall Street is made by taking risks.”

...He said that BLMIS, like all brokerage firms, was “very carefully enforced and surveilled.  It doesn’t mean there are not abuses, for sure, but by and large in today’s regulatory environment, it’s virtually impossible to violate rules....  If you read things in the newspaper and you see somebody violate a rule, you say well, they’re always doing this.  But it’s impossible for a violation to go undetected, certainly not for a considerable period of time.”

...After seeing and hearing Bernie for the first time, [equities trader and head of New York Investing Meetup, Daryl Montgomery] states, “He was not a great intellect, and was fairly insubstantial, but that is very common for people that have these big positions—pleasant but don’t seem very bright.”

—Jerry Oppenheimer,
Madoff With the Money

JANUARY 3, 2009

When you shout at people “be confident,” you shouldn’t expect them to be anything but terrified.

Michael Lewis and David Einhorn
New York Times Op-Ed



FEBRUARY 17, 2009

August 2007 is where I remember the first tremors, really, where you started to pick up this talk on Wall Street, maybe there’s a problem here.  And the mortgage-backed securities start to have some problems for the first time—not giant but you start to hear tremors of write-offs and so on.  That is when everybody involved in the financial system kept saying, “It’s going to be OK; it’s going to be OK.”  And these days when somebody says it’s going to be OK, the first thing you think is, if they’re saying it that means it must not be OK.

—Joe Nocera,
New York Times business columnist,
comment for Frontline program on the financial meltdown



It was, as Bob Steel memorably described it, the financial version of mad cow disease: only a small portion of the available beef supply may be affected, but the infection is so deadly that consumers avoid all beef.

…In asking for this, we would be bailing out Wall Street.  And that would look just plain bad to everyone from free-market devotees to populist demagogues.

…Then [Bush] stepped aside to let Mantega resume.  The Brazilian minister said, “If you don’t mind, I’m going to speak in Portugese, my native language.”

President Bush replied, “That’s okay, I barely speak English.”

…We are now on a path where deficits will rise to a point at which we may simply be unable to raise the necessary revenues even if significant tax increases are imposed on the middle class.


—Henry Paulson,
On the Brink

(And, of course, as everyone fights for the middle class, this would also get the rich, like Paulson, what they want.)



STOCKS OFF 5 BILLION               

—New Herald Tribune,
October 24, 1929.

October 25, 1929

President Hoover

The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis

Statement to the Press.




President Reagan’s initial reaction to Wall Street’s calamity on Monday [October 19, 1987] had been to speak optimistically about the economy.  “Steady as she goes,” he’d said, later adding, “I don’t think anyone should panic, because all the economic indicators are solid.”  This was meant to be reassuring, but in the light of events sounded disturbingly like Herbert Hoover declaring after Black Friday that the economy was “sound and prosperous.”  Tuesday afternoon we met with Reagan at the White House to suggest he try a different tack.

—Alan Greenspan
The Age of Turbulence



Go to Next Page


Go to Index
















 Home Page

 About Us, Introduction

About Us, the Summary

 About Us, Index

To The [Abuse] Survivors ♥♥♥♥♥

My Story

Men Dying for Love

On Doping

Index of “Oh, Yeah?

Victim Correction as a Panacea, the Summary (Top of Page 1)

(Page 2)(Main Page 3)

Cancer Victims Corrected Too

The Main Victim Correction as a Panacea

 Documentation On the Social Problem of Unnaturally Rampant Depression

 Standard Rationales for Victim Correction as a Panacea

 Schopenhauer on Predators

 Emphasis on Victim-Self-Blaming

Darwinist Lehman Brothers’ INSIDE Sales Tips

Darwinist Lehman Brothers’ INSIDE Introduction to Management Book

Out of the Same Mold as the Great Crash of 2008

Message for Intellectuals in the Islamic World

Candace Newmaker’s Experience

Breaking Important Confidences for Your Own Good

A Glimpse Into the Soul of Victim Correction

Cigarette Industry and Victim Correction

Niebuhr’s Ideas on Our Nature and Destiny

Herbal Experiences for Women

Some Ideas for Rapport