Alan Greenspan, Ayn Rand and the Libertarian God that Failed

By Angelo Matera

Posted 10/9/08 at 5:54 AM


In today’s NY Times, Peter Goodman’s excellent profile of former Federal Reserve Chairman Alan Greenspan confirms what I’ve been writing, that it was a specific “structure of sin”—financial speculation—rather than mere human greed (or bad home loans) that created the credit crisis. I’d always wondered how a rigid anti-government libertarian ideologue like Greenspan—an Ayn Rand disciple, no less—managed to get appointed to the most powerful economic post in the world. If he had been running the Food and Drug Administration, he would have been exposed within a few months, as soon as the first deaths caused by lax food inspection started happening. But the byzantine complexities of global finance, and the fact that Ponzi Schemes can run for a long time before collapsing, meant Greenspan could reign for twenty years before the effects of his blindness would be seen in today’s financial meltdown. Despite warnings from experts, Greenspan did nothing to regulate the market for financial contracts known as derivatives as it grew from “a relative pittance just two decades ago” to $106 trillion in 2002 to $531 trillion today. Along the way he had accomplices from across the political spectrum, from current McCain advisor Phil Gramm, to Clinton Treasury Secretaries Robert E. Rubin and Lawrence Summers. (If anything, this financial crisis should convince doubters that we’re living under one party rule.)

I’ve cited the esteemed management guru Peter Drucker’s remarks about Wall Street’s reckless fascination with derivatives before; in that same vein, this article cites some of the most successful capitalists in the world in their criticism of derivatives:

“George Soros, the prominent financier, avoids using the financial contracts known as derivatives ‘because we don’t really understand how they work.’ Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential ‘hydrogen bombs.’ And Warren E. Buffett presciently observed five years ago that derivatives were ‘financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.’”

Pope Benedict XVI has said that when reason is divorced from faith, the achievements of reason—in this case, the mathematical genius that went into devising complex financial instruments that appeared to eliminate risk—are turned against man. In an interview with German media he gave two years ago, the pope warned that “of course we have to learn, acquire knowledge, ability, know-how, as they say… But if we only teach know-how, if we only teach how to build and to use machines, and how to use contraceptives, then we shouldn’t be surprised when we find ourselves facing wars and AIDS epidemics… [W]e need the formation of the heart… with which the human person acquires points of reference and learns how to use the techniques correctly.”

In the article, Goodman explains how Greenspan’s point of reference in assessing the risks of derivatives was his faith—not in God and the wisdom of the ages—but his faith in a radically secularist, anti-common good ideology that put reason in the service of profit, rather than the human person:

“As the long-serving chairman of the Fed, the nation’s most powerful economic policy maker, Mr. Greenspan preached the transcendent, wealth-creating powers of the market.

A professed libertarian, he counted among his formative influences the novelist Ayn Rand, who portrayed collective power as an evil force set against the enlightened self-interest of individuals. In turn, he showed a resolute faith that those participating in financial markets would act responsibly.

An examination of more than two decades of Mr. Greenspan’s record on financial regulation and derivatives in particular reveals the degree to which he tethered the health of the nation’s economy to that faith.”