Alan Greenspan Triumphant - or Not
Autobiographies when soon after events and newly written history books have a problem. They sometimes don't stand the test of time, as analysis of current events, while useful, is dangerous as all the facts aren't in yet. Nixon wanted his say. Carter. Reagan. Bush I. Clinton. Bush II. They've all tried to have their say. However, it takes time to figure out what happened and what of it was significant.
My review of Greenspan's book in late 2007 (Mixner) just after Greenspan stepped down was almost exuberant in its willingness to accept Greenspan at face value. China was the great unknown. Inflation was the great enemy. Ah, if only things were only so simple.
13 Bankers really isn't about Greenspan at all. Its premise is that consolidation of the banking industry has led to an oligarchy of sorts, similar in some respects to the oligarchies we're seeing in Russia with the rise of capitalism and the rise of oligarchies from the ashes of the large state-run firms now in private ownership. Greenspan takes it on the chin (Johnson, 133):
- Repeal of Glass-Steagall, one of the main-stays of Depression Era bank regulation was a bad idea.
- Banks in 1996 were allowed to take up to twenty-five percent of their revenues from securities operations, up from ten percent. They then made things worse by leveraging said investmests.
- Banks were allowed to enter new businesses not by gaining approval from the fed before-hand, but only by receiving a disapproval later, after they were already in business.
- Old Glass-Steagall required Travelers and Citicorp to break up immediately after their merger as they were in unacceptable businesses at the same time. Their solution? Get Glass-Steagall repealed.
- The huge merger wave of the late 1990's, and the passage of the Gramm-Leach-Bliley bill allowed the entry (or debacle, shall we say) of the entry of the huge banks into the mortgage business and into the mortgage-backed security business.
The history of banking is full of boom-bust cycles. This latest bust is just the latest in a series. The point is, however, without some re-writing of the rules, we can count on another bust cycle.
References
Greenspan, Alan. The Age of Turbulence. Adventures in a New World. The Penguin Press. 2007.
Johnson, Simon and James Kwak. 13 Bankers. The Wall Street Takeover and the Next Financial Meltdown. Pantheon Books. 2010.
Mixner, Jack. Greenspan Speaks. Mixner Strategy Blog. http://mixnerstrategy.com/blog/2007/12/greenspan_speaks.html 2007.