Entertaining as Rick Perry’s November 9, 2011 “Oops” moment was—you know, the one when in his frenzy to take a hatchet to government, he forgot which heads he was chopping off—the more significant and now completely repressed “oops” moment for the American right occurred three years earlier, on October 23, 2008, when Alan Greenspan confessed his “state of shocked disbelief” that markets don’t regulate themselves.
Without rules, the free market is kind of like the punch you might have served at parties in your college dorm. Who knows what toxic assets were swimming around in there? Fermented Hi-C? Grain alcohol? Nail polish? Why not, when punch itself was invented by desperate sailors who had run out of beer and turned to the locals for a stimulus package. One of the oldest recipes calls for arrack, which tastes a bit like a credit default swap and is made from palm trees. Any punch worth its floating lemon wheels is meant to creep up on guests, unleashing a voracious appetite for risk. In dormitories, that means regrettable sex. Greenspan’s deregulatory punch unleashed a voracious appetite for paper profits, what he called “euphoria” and the rest of us call greed.
Beyond chopping off regulatory heads wherever they might be, Chairman Greenspan left another insidious legacy. He handed off a historically low 4.25% interest rate to his successor, Ben Bernanke, who then had very little room to cut it. Fiddling with the Federal Funds rate is one of the few tools the Fed has. Roughly put, the idea is to crank the rate up when the economy’s “euphoric.” Paul Volcker raised it to 20% in 1981, and was duly vilified. Nobody likes a spoiler, but ever since the Depression, the Federal Reserve’s job was supposed to be to take away the punch bowl just when the party gets going. And part of why you take the punch bowl away is so that you can bring it back, by lowering rates in a crisis like the one we have now. That’s hard to do when rates are already low.
Greenspan not only failed to take away the punch bowl, he spiked it with 80-proof easy money, in the form of both low interest rates and deregulation. No wonder the speculators got drunk. His tenure fit right in with the larger recklessness of the Bush years, the blind appetite for risk, the unwillingness to weigh long-term consequences against immediate gain--in the case of the invasion of Iraq, the neglect to think even one week ahead into a post-Saddam future. The attitude was to take the easy profit in the short term and let the future fend for itself. Thus so-called fiscal conservatives and budget hawks gave away a budget surplus to the 1%, rather than saving it for a rainy day. Meanwhile, the rest of us journeymen got punch drunk, battered in the early rounds of what turned out to be an economic TKO to the middle and working class.
At his 2008 hour of reckoning, Greenspan predicted a “restrained” market “for an indefinite future”:
"The financial landscape that will greet the end of the crisis will be far different from the one that entered it little more than a year ago. Investors, chastened, will be exceptionally cautious. Structured investment vehicles, Alt-A mortgages, and a myriad of other exotic financial instruments are not now, and are unlikely to ever find willing investors."
Chastened, my ladle. Not only did investment banks and hedge funds quickly return to that “myriad of other exotic financial instruments,” Greenspan himself renounced caution a few years later, criticizing the meek regulations of the Dodd-Frank Act for their attempts to impose order on financial markets.
Have a cup of Greenspan's Oops. You’re going to need it when you get rabbit punched by those party animals again.