Monday, October 1, 2007
Personal Asides: I. Brendan Reilly a Smash Hit Oberweis Shows Disdain by Waiting 4 Days After Invitation to go on WLS and Deciding No on Friday (Thanks, Jim. If Thats Statesmanship Ill Take Vanilla.)
II. The Mystery of Greenspans Criticism of Bush No Mystery at All. The Mystery is the Fed and Why We Think We Need It.
A slight bout of intestinal flu interrupted the flow of rhetoric last week and I missed Fridays contribution but I was sufficiently well to introduce Fr. Frank Pavone on Wednesday at Catholic Citizens and to introduce journalist Amy Welborn on Thursday night for Legatus. Between those two appointments, steady, unremitting sleep proved the cure.
I: Brendan Reilly and Jim Oberweis.
Appearing alone on my WLS-AM 890 show after the other half, Jim Oberweis considered appearing for four straight days (Monday to Friday) and finally declined mid-day Friday making it impossible to find a replacement in that short time, 42nd ward Alderman Brendan Reilly was a smash hit if for no other reason than he is one of the few city officials (and this includes the mayor) who can dexterously handle the English language. For several decades now seemingly part of the mystique associated with a politician named Daley seems to be the knack of so mangling syntax that no one completely understands what was meant.
That was okay in past years, but it is a true delight to face a bright young alderman age 35 who is not a lawyer who can adequately explain his views in clear and sometimes even educated English.
For those who think arrogance pertains only to members of the ruling junta of the Illinois Democratic party, please be informed that thoughtlessness has moved front and center to the Republican party. One could be excused in believing that a string of electoral defeats would engender humility in a candidate. In some, not all.
One week ago today I extended an invitation to Jim Oberweis to be my guest on WLS the following Sunday. I checked back often throughout the week only to be told that they will call me. Well on Friday afternoon, they did and said that the next congressman from the 14th district had considered appearing but found that he had not the time for it. By then it was too late to schedule anyone elsebut Brendan Reilly was nice enough to accept full billing on the show. I thank Jim Oberweis for his matchless courtesy.
This is fitting comeuppance, I suppose for the damned fool I made of myself by supporting Jim Oberweis in all previous runs and especially for something I very much regret nowcriticizing Bill Brady to a great extent for, I claimed, training his guns on Oberweis in the gubernatorial campaign which, I said then, probably helped secure the GOP nomination for Judy Baar Topinka.
I came to my senses later when I discovered that I was the only guy to be mad at Brady. Oberweis and he had had lunch and a warm discussion following the primary before Oberweis endorsed Topinka (which I never did). For this I deeply thank the dairy mogul for delivering this stinging lesson. Taking four days to determine youre not going on a major radio show, thus blocking any chance of my getting a replacement shows that you are right, Jim, when you say you can fill the shoes of Denny Hastert.
Bill Brady, you have my fullest apologies and when can you be on the show?
II: Greenspans No Mystery.
Aw, hit `im, Jesse!
Several years ago a group of us from Chicagos Haymarket Center (on whose board I serve) were in Washington, D. C. Jesse Taylor, a key employee of Haymarket was driving us down Constitution avenue at a fair and legal rate of speed when a slight, wiry pedestrian with a heavy briefcase, frazzled bald head and frog-like bulging eyes darted out from the curb and trotted across the street with a cocky self-assuredness, relying on Jesses immaculate good driving instincts to slow down. As that year gold had shot up well beyond his 12-year average, a sure indication that the Federal Reserve was creating excess liquidity (what John Maynard Keynes once called the barbarous relic still hovering in the $650 to $700 an ounce range), I remember commenting to Jesse it was a shame he slowed down since he would have been immortalized in economic history by picking off Alan Greenspan.
Since then I can think of how we might have avoided or deterred the housing bubble which is also Greenspans legacy. But then we would have missed our appointment.
To Watergate journalist Bob Woodward Greenspan was a maestro. To me, far less accomplished on the economy than many, he was and is a patent bore.
One of the big so-called mysteries in U. S. politics currently is why Greenspan, declaring the Iraq War was waged for oil sounds not unlike Michael Moore. Or that this supposed libertarian, regards Bill Clinton as a better president fiscally than George W. Bushdespite the fact that early in his first term Clinton raised taxes and that Bush cut taxes that while Clinton attained a balanced budget and prosperity, Bush is cutting down on the deficit and has engendered prosperity. But on second-thought it is clear that personal politics weighed ineven with a supposedly genius-maestro who orchestrated the longest boom in U. S. economic history. In fact that other night at dinner, Jesse Taylor himselfwho spared Greenspans life at the wheel of our automobileasked me this. He had seen Greenspan (alive at 82 through Jesses humaneness) interviewed on 60 Minutes where he suffused Bill Clinton with praise and blasted George W. Bush.
Were he candid and fair in his own self-assessment in his memoir, The Age of Turbulence: Adventures in a New World, Greenspan would have acknowledged that Bush inherited the 200-2001 recession precisely because Greenspan unduly tightened up the Fed, which got commodities crashing. Bush had to deal with that all the while Clintongoing out of power and with his legacy to protect--kept denying there was any recession at all. And were he highly self-critical he would martial all the discredit he deserves for the housing bubble, although he admits I really didnt get it until very late in 2005 and 2006. His warning came in 2007too late to do any good. He warned tardily of large double digit declines in home values larger than most people expect. After 9/11 the Feds Open Market Committee cut federal funds rate from 1.25% to 1.00%. The sub-prime mortgage industry collapsed in March, 2007 with many bankruptcies and Greenspan blamed for engineering the bubble itself.
None of this excuses those mortgage bankers who dished out money pell-mell without checking to see if peoples incomes were real, issuing teaser rates and then advertising new teaser rates to entice the gullible even more. Greenspan was the ultimate cause but others bear much of the blame in follow-up. Greenspans successor, Ben Bernanke, cut the Fed funds rate by half a percentage point, twice what the markets expected, taking the risk that he might unleash inflation in an economy that is already growing at a reasonable pace. Greenspan says I would be hard-pressed to see what I would have done differently. But thats really not much consolation, Alan.
With all these things on his plateenough to humble an ordinary man-- why is Greenspan grouchy at Bush? Bush has been far more attentive to deregulation and the need to support private businesswhich normally one would have to have assumed ranked high in the Greenspan purview. It is certainlyand partially justificatory-- due to the fact that Bush failed to veto spending measures in his first, and much of his second, term. A source formerly close to Greenspan (whom I met when both of us were at Commerce, me as an assistant to the secretary, he a higher up who left to be, for a time, an assistant at Greenspan & Associates) tells me that the failure to veto is part of itbut what Bush believes is far more. Much more. .
Bushs one veto in his first term was on embryonic stem-cell because he felt, rightly in my view, that this nation has no need to create life just to destroy it for experimental purposes which my friend says set Greenspan, the former Ayn Rand objectivist and his exceedingly socially objectivist wife off their rockers. Greenspans two wives were named Mitchell. The first, a violinist named Joan to whom he marriage was annulled after a year, first introduced him to the Objectivist philosopher and novelist Ayn Rand and quickly he became one of her key disciples. The current, Andrea, NBC-TVs foreign policy analyst, shares his fierce Objectivist views. Rand hated Christianity and everything that smacks of social altruism. Nor is it fair to assume Greenspans interest in Rands Objectivism was a temporary aberration. As one of her foremost pupils, he read and re-read the proofs of Atlas Shrugged. Much later, in her old age, he brought her to the White House to meet the president when he, Greenspan, was awarded the presidential medal of freedom. He was a chief mourner at her funeral. Her view is the exhilaration of egoism and the virtue of the Self.
Small wonder as my friend avers, Greenspan (and his wife) dislike social conservative issues and people who uphold them: which means the Judeo-Christian verities. They feel that evangelicals high-jacked the Republican party and derailed the libertarian movement. Greenspan is an economic man but a man bound by atheism and the canon of Ayn Rands hollow selfishness nevertheless. He and Andrea were married in 1997 by Justice Ruth Bader Ginsburgthe old ACLU attorney. Natch.
Reportedly, he has nothing but scorn for the underlying bases of the administrations of Ronald Reagan and both Bushes because they involve so much more than economics. He was far more comfortable with the sturdy country club orthodoxy of Jerry Ford and pragmatism of Bill Clinton who hasnt the faintest inclination of where Almighty God and the moral law is or should be positioned on the economy, my friend told me.
Of course on Nixon, he was turned off by his cursing and came away thinking he was an evil manor as he would say `not a good person. He is right there.
With George H. W. Bush, Greenspan was put off by what he felt was the presidents preppy but un-intellectual approach, regarding Bushs request for lower interest rates as a help for his reelection with frosty disapproval. Bad as that was, it was Dick Darman, the Darth Vader who convinced Bush, Sr. to violate his anti-tax pledge, which alienated Greenspan as it did me. Public bashing as Greenspan described Darmans critique, only convinced the Fed to reassert its independence.
After the 1992 election, Bill Clinton, on the other hand, was vastly more interesting to Greenspan and they spent 2-1/2 hours in Little Rock with Clinton pretending (and maybe not pretending) to be an apt disciple while the older man conducted his monologue tutorial. Clinton has always been good at leaning forward, his chin resting on his hand as a tousle-headed boy, absorbing wisdom from a master. Greenspan went away wondering if the attentive student bit was truth or an act. He decided it was truth: thus it worked with Greenspan. With Bill what you see is what you get. No heavy ruminating about Judeo-Christian values or social conservatism.
Bob Woodward in his 2003 book Maestro is responsibleas he has been for much other mythology believing the Deep Throat was a much more influential Higher Up than acting FBI director and that Bill Casey, rendered inarticulate after a stroke, really told him secrets in his hospital room where the door was labeled no admittance for many of us believing Greenspan is a moody genius, a book concentrating on the manipulations that Greenspan went through at the Fed to schmooze many sides including calling Rush Limbaugh on the phone to explain Fed incursions with Mexicos banks. He thrills to the fact that Greenspan broke some of the rulesbut only because he felt he had to, you understand, rather like a fire engine deciding to go the wrong way on a one-way street to reach a burning house faster.
Calling Iraq War justified for oil (no matter how he tried to wriggle free in clarification,) Greenspan shows that he is still an Ayn Rand partisan one who has no absolutes but power, who despises others who believe in God and who tie that belief to patriotism. I torture myself with memories of that fleet-footed old man (a tennis player) dashing across Constitution avenue midway not following the lights making up his own rules. God, if only oh well.
The Fed as Fraud?
Beyond Greenspans disaffection with the Bushes is the record of Greenspan himself and the fundamental justification of the Fed. As previously mentioned, last month to rectify his past sins, the Fed under Ben Bernanke pumped in extra money and cut its discount rate to stabilize the financial system suffering from the sub-prime mortgage debacle .a debacle the Fed itself and Dr. Greenspan caused by, as it turned out, printing money in far greater quantities than the economys requirements. Well at the very least it justifies the place of relative amateurs like you and me to discuss these policies since even the Maestros goof up.
Nor is it fair to dwell solely on Greenspans failings or--as Woodward does--his successes as a maestro. In the late 1990s his Fed tightened up and produced a recession. This seemed to be just part of an old pattern. Starting in 1967 and continuing through the `70s under Arthur Burns, it sped the money supply to counteract recession and the markets assumed that was the primary goal. In 1991 Paul Volcker returned the Fed to fighting inflation as a first prerogative and Greenspan did the same. Thus the dizzying cycle goes on which leads to the question is the Fed necessary? When I was going to college our economics teachers insisted that unregenerate capitalism itself, untrammeled and free, caused the Great Depression. Thatalthough they didnt go out of their way to tell usis the theory of Marxism. That was the theme of John Kenneth Galbraith and Arthur Schlesinger, Jr.s books on the heroism of FDR.
Now with the revisionism of Friedrich Hayek, the work of Ludwig von Mises and the rise of Milton Friedman, there is a growing convictionshared by me for onethat the Fed itself caused the Great Depression (although Friedman was not as openly condemnatory of it as a central cause as others). The Austrian theory of the trade cycle puts the blame on central banking and monetary authority itself. In a truly free market, the money supply would consist of a hard commodity i.e. gold and silver and banks would have 100% reserves. But with the Fed, the banks of the nation were organized into a giant cartel where the official money supply could expand faster than the actual reserves in the vaults. Under the Austrian theory the so-called boom of the 1920s was illusory based on phantom credit without the necessary real savings and investment needed to fulfill all the business plans. Reality had to happen sometime and it did with the crash and the economy used the time to liquidate the bad investments made during the bogus prosperity. FDRs administration allegedly prolonged and hampered the readjustment process by that viewbut his political acts, the creation of the corporate state, were nonetheless invaluable to restore the national psycheso say I.
We know that the Fed is the third try at setting a central banking system in the United States, the first two running for 20 years. Hamilton, whom I idolize on most matters, started the first (1791-1811) and his rationale for the bank has remained with me ever since. The second bank went from 1816 to 1836 and served as great whipping posts for such demagogues as Andrew Jackson who vetoed renewal of the bank and started a see-saw reaction of free banking which sent many state chartered banks going in and out of business. A series of bank panics and the work of J. P. Morgan to personally stabilize the countrys banking system so as to avoid a cataclysmic crash led to the Federal Reserve Act of 1913.
In order to avoid the political heat, a group of Rockefeller and J. P. Morgan executives sat down with politicians at a hush-hush retreat that lasted 10 days in 1910 held at get this Jekyll Island, Georgia (Jekyll as in Jekyll and Hyde). It took three years before gaining acceptance. News of the secret meeting on Jekyll Island finally made the papers through the enterprise of one Bertie Charles Forbes, father of Malcolm, grandfather of Steve which started Forbes on his way to a career in business journalism.
Republicans were seen to be tools of Wall Street so if a Fed was to be enacted, it had to be done by the Democrats, realists counseled. Democrats were the foremost critics of the original prescription written by Sen. Nelson Aldrich (R-R.I) who had close ties to the Rockefellers. But Woodrow Wilson who had done so many terrible things through his presidency and still survives as a visionary in our fiction, Wilson had to silence a foremost critic of Wall Street in the Democratic party in order to get the bill passed.
The foremost critic was, of course, William Jennings Bryan who got Wilson nominated by tossing his delegates over to the ex-Princeton professor. So Wilson made Bryan his secretary of state. And the deal was that in return for this honorific, Bryan would get Democrats in Congress would support it.
Now Republicans steered shy of supporting it. Such people as Sen. Robert LaFollette of Wisconsin and Congressman Charles Lindbergh, the Minnesota Farmer-Laborite father of the Lone Eagle, bitterly opposed it as a money trust. That view continues to this day. When I was a young congressional aide I would listen to one of the last old populists rail against the FedCongressman Wright Patman of Texas, chairman of Banking and Currency. Now it is not unusual to have Congressman Ron Paul espousing its death which is what I heard last weekend at his rally at the Hyatt.
Paul maintains its unconstitutional. Well, he maintains a lot of things are unconstitutional. But he has a pretty good case with the Fed. The Constitution grants to Congress the authority to coin money and regulate the value of currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore the Constitution does not empower the federal government to erode the standard of living via an inflationary monetary supply.
Like presidential aspirant Paul, the Austrian School is particularly vehement. It criticizes the Feds expansionist policies in the 1920s; Friedman did say that the Fed made the Great Depression worse by contracting the money supply at the very time the markets needed liquidity and added he would like to abolish it and replace it with a computer. Even Chairman Bernanke said in a 2002 speech: I would like to say to Milton and Anna [Milton Friedman and Anna J. Schwartz his co-author] this: Regarding the Great Depression. Youre right. We did it. Were very sorry. But thanks to you we wont do it again. Thanks, Ben. I think.
The Fed opened for business in 1914. It is called an independent federal government agency. The Board doesnt receive funding from Congress; its funding is smothered in other ways much as the CIAs more clandestine projects are known only to a few congressional insiders. The terms of its seven members overlap presidential terms. The tradition is that once a member of the Fed is chosen by the president he or she functions independently. Its big job is to control the money supply. It does this through what is called the Federal Open Market Committee (FOMC) 7 members of the board of governors and 5 members from Federal Reserve Banks. The FOMC has the job of ruling the money supplybut the Fed chairman is the lead horse, obviously. To do this it lends or purchases specific types of securities with approved participants such as the U. S. treasury.
When the Fed buys government securities, it puts money into circulation. When there is more money, or liquidity, interest rates tend to drop and more money is borrowed and spent. When the Fed puts on the brakes, it sells government securities, in effect taking money out of circulation and causing interest rates to rise and making borrowing more difficult. Obviously, historically big business or Republicans have been identified with tight money to keep inflation down; historically the interests of the broader population, small towns, farmers etc. has been regarded as the Democrats purview and they seem to want more money spread around or liquidity. But all this is an oversimplification. Too much liquidity hits the little guy, witness the housing bubble now; too much restraint hits business and curtails expansion.
At bottom, the Fed strikes me as a fraudone which if the people knew about it, theyd be very disturbed. They think the Fed is government. The federal reserve banks of every region are owned by private banks. It is sort of a quasi-private-government system of privately owned enterprise entities which is open to investors with giant banks in JP Morgan, powerful investment banks like Goldman Sachs which constitute a cartel that affects business activities in ways we cannot imagine or control.
The question is, I guess: how would we manage without a Fed? We did dreadfully before the Fed which caused Wall Street to want it and the Democrats to oppose it. Then the Democrats jumped onto it with both feet. Now both parties are reasonably sure to keep it. If Congress takes over the job as it warranted under the Constitution, what kind of leadership would we have? As a creature of the Congress well, let us say the House I have not seen many statesmen who could do the jobcertainly none with the acumen of either Greenspan who has spent a lifetime to the study, or Volcker. I look around and I see the Ways and Means committee run by Charlie Rangel (D-N.Y.) who is a good friend of Al Sharpton. I look back and remember the Ways and Means most astute chairman was Wilbur Mills (D-Ark.), until he went cavorting into the Jefferson lagoon with the stripper Fanne Fox.
So, as I reflect now, I suppose Jesse Taylor did the right thing by touching the brakes and slowing up and let the little gnome with his jacket flying get across the street. But ah just suppose Jesse had gunned it a tad and cause the arrogant, furtive little old guy try to outrace us to scamper even faster to get across Constitution avenue. If he had to really put on the speed to beat Jesses car maybe that 79-year-old heart would produce excess liquidity which would result in a bubble.
But then, wed have to stop and scoop him up. Applying the Ayn Rand selfishness credo itd be time-consuming for us.
And wed be late for our meeting.