Yesterday, Paul Krugman made the connection between the subprime lending crisis and Ayn Rand cultism.
â€œFed shrugged as subprime crisis spread,â€ was the headline on a New York Times report on the failure of regulators to regulate. This may have been a discreet dig at Mr. Greenspanâ€™s history as a disciple of Ayn Rand, the high priestess of unfettered capitalism known for her novel â€œAtlas Shrugged.â€
In a 1963 essay for Ms. Randâ€™s newsletter, Mr. Greenspan dismissed as a â€œcollectivistâ€ myth the idea that businessmen, left to their own devices, â€œwould attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings.â€ On the contrary, he declared, â€œit is in the self-interest of every businessman to have a reputation for honest dealings and a quality product.â€
Itâ€™s no wonder, then, that he brushed off warnings about deceptive lending practices, including those of Edward M. Gramlich, a member of the Federal Reserve board. In Mr. Greenspanâ€™s world, predatory lending â€” like attempts to sell consumers poison toys and tainted seafood â€” just doesnâ€™t happen.
Randians have a remarkable capacity not to notice that we human beings very often do things contrary to our own self-interest. It would be to our own self-interest, for example, not to commit crimes of any sort, as we’re likely to get caught eventually. It would be to our own self-interest not to smoke or use drugs or eat too much trans fats. The fact is, if we all acted according to our own self-interest the world would be a paradise. Alas, the number of human beings on the planet today who truly and only act in their own self-interest is probably in the dozens. The rest of us are busily self-destructing, one way or another. This is what’s called “human nature.”
But Mr. Greenspan wasnâ€™t the only top official who put ideology above public protection. Consider the press conference held on June 3, 2003 â€” just about the time subprime lending was starting to go wild â€” to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw.
Also in attendance were representatives of financial industry trade associations, which had been lobbying for deregulation. As far as I can tell from press reports, there were no representatives of consumer interests on the scene.
Two months after that event the Office of the Comptroller of the Currency, one of the tree-shears-wielding agencies, moved to exempt national banks from state regulations that protect consumers against predatory lending. If, say, New York State wanted to protect its own residents â€” well, sorry, that wasnâ€™t allowed.
Generations of real-world experience says that securities and markets need some kind of regulation to keep them honest or the forces of greed will take over and tear them apart. We saw this in the late 19th century during the age of the Robber Barons. We saw this in the Coolidge Administration. We saw it during the Savings and Loan crisis of the 1980s.
Yet Rand culties and other wingnuts simply will not learn from real-world experience. They cling to their ideologies come hell or high water. The Narrative is their only truth.
For example, Michael Barone writes,
… the preference for smaller rather than larger government is not as ample as it used to be. The strongest case against big government has been its failures in the 1970s, typified by gas lines and stagflation. But the median-age voter in 2008 was born around 1964, so he or she never sat in those gas lines or struggled to pay rising bills with a paycheck eroded by inflation. That demographic factor helps explain why Democrats today are promising big-government programs, unlike Bill Clinton in 1992, when the median-age voter remembered the 1970s very well. …
… Republicans, facing an electorate half of which doesn’t remember the 1970s and most of which has not appreciated the generally good economy we’ve had since 2001, have yet to muster persuasive arguments for their policies.
Barone’s thinking is so sloppy one wonders if he can tie his own shoes. He blithely connects “big government” to 1970s gas lines and “stagflation,” but OPEC caused the gas lines and I see no consensus that “big government” — whatever that means — caused stagflation.
On the other hand, all those median-age voters probably do remember the country was a lot better off before the wingnuts took over.
I find myself speculating if right-wing polemicists like Barone are deliberately being deceptive, or if they are functioning on autopilot and never honestly stop to think through, say, what the connection between “big government” and 1970s gas lines might have been. If the latter is true, shouldn’t we be rounding these people up for further study? How exactly does the wingnut brain work? How can a man be bright enough to graduate from law school and still be utterly unable to think?