2008

Twilight of the Capitalist Gods

Paolo Pellegrin / Magnum for Newsweek

By Michael Freedman | NEWSWEEK

Published Dec 20, 2008

From the magazine issue dated Jan 5, 2009

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Possibly one of the clearest public statements ever uttered by the notoriously opaque Alan Greenspan came in late October, when he admitted he had "found a flaw" in the laissez-faire ideology he had promoted for decades. "I don't know how significant or permanent it is," he told a congressional committee, "but I've been very distressed by that fact." That this icon of the financial world should falter, even if only for a moment, will live to be one of the most enduring symbols of the 2008 economic and financial crisis. In more than 18 years as chairman of the Federal Reserve, he became the trustworthy face of global capitalism. "With Greenspan, we find comfort," Bob Woodward wrote in "Maestro," his 2000 biography of the central banker. "He helps breathe life into the vision of America as strong, the best, invincible."

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But as 2009 begins America no longer looks quite so invincible. The icons of capitalism have fallen around Greenspan with such bewildering speed it bears repeating: Bear Stearns, Lehman Brothers, AIG, the Big Three automakers—all have suffered enormously. Bernard Madoff, a pillar of his community and former NASDAQ chairman, stands accused of leading a $50 billion fraud. The victims: many of the world's most sophisticated investors. Alas, still more will fall in the months to come, names that are smaller and bigger. And in this twilight of the capitalism gods moment, the picture emerging is not one of greed, not of the Gordon Gekko variety, anyway. No, what is becoming clear is the astonishing trust the world put in a handful of gray-haired men and institutions. Even a fellow like Woodward, a dogged reporter famous in America for stories that helped bring down Richard Nixon in Watergate, seemed to believe that Greenspan, despite his lack of clarity, or perhaps because of it, was somehow omnipotent.

But now, with Alan Greenspan caught in a moment of self-doubt—and pilloried by newly confident critics—it is hardly surprising if the rest of us are questioning the received wisdom about markets, too. The people in which the market put its faith—those like Greenspan, Robert Rubin, Hank Paulson and the CEOs of the world's biggest companies—demonstrated that even they had doubts or at least significant gaps in knowledge.

Soon, a new batch of big brains will come into power. Lawrence Summers, heralded as the top economist of his generation, will become Barack Obama's chief economic adviser. Treasury watchers have called Timothy Geithner, nominated to take the department's helm, "a solid choice in many ways." And Obama himself, it is often said, has the right combination of brains and temperament to lead the United States through the crisis.

But expecting too much from any of these individuals, or putting them on a pedestal, is perhaps the exact wrong lesson of 2008. As brilliant and well intended as they are, they, like Greenspan and Paulson and all those smart, rich guys allegedly snookered by Madoff, don't know what they don't know. No more icons, please. Trust, but verify.

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Posted By: lovejusticepeace @ 12/25/2008 11:31:32 AM

Democracy turns Demoncrazy!
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Posted By: Libricrat @ 12/22/2008 12:56:58 PM

I try to stay away from tit for tat and fingerpointing as much as possible but, this article is the worst piece of media bias and fiscal conservative bashing that I've seen in a long time. There is very much literature out there to show that Timothy Geithner and Robert Rubin are very much part of the problem rather than part of the solution. I not to mention Paulson. You can do your own research but, rather than separating out the good apples from the bad we're now getting ready to throw out the entire barrel and replace it with Euro-Socialism.
Free markets work and will always be the best economies but, eventually we will figure out the credit is the Achilles Heal of Capitalism. Greed as well needs to be addressed as well. It differs from good honest profit seeking in that Greed (for the purposes of our current credit crisis) is what motivates preople to lie, cheat for financial gain which should clearly be policed and procecuted. If however, we regulate and prevent honest business for profit along with regulating for greed, we will be throwing out the baby with the bath water. Capitalism works as long as you account for greed and credit.
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Posted By: C. MacLean @ 12/22/2008 8:34:39 AM

Aclove78 says: "One philosophy involves tying the amount of money in circulation to a finite resource, preferably a commodity with inherit value."

Except that the finite resource with inherent value the world now uses as its standard is oil, not gold, and America doesn't set the price. We just delude ourselves into thinking we do.

Remember - it's the ecomomy, stupid? It's the oil, stupid.

At various times in history, the commodity was gold, or land, or lumber, or rum, or sugar, or slaves. Once we solve the petroleum problem, and it is no longer the resource of inherent value, it may well be water.

But as aclove78 points out, if we have an economy based on a shell game of over-valued stocks priced on over-valued real-estate based on whatever the market says its worth on any given day, instead of a touchable, stock -pile-able THING, we will continue to flounder.

Greenspan, however, was just the blackjack dealer - WE were the pathetic gamblers, riveted to the table; we were the ones who couldn't fold our cards and walk away. Somewhere along the way we traded the American dream of self-improvement for the American nightmare of the big jackpot.