Posted March 6, 2009on:
If anyone in recent times has approached the stature of the Delphic Oracle of ancient Greece, it was the former US Federal Reserve Chairman, Alan Greenspan. World leaders, financiers, market traders and corporate CEOs venerated him. They waited with bated breath for his gnomic pronouncements on interest rates or, occasionally, the future of the world economy. Often hailed as the most powerful man in the word, markets rose and fell on Greenspan’s word. Economic experts, like war-time cryptologists, would sift through his phrasing to find hidden messages. From his position in the financial stratosphere he supervised the boom time of the US economy and the ‘derivatives bubble’.
On 23 October last year, Greenspan came down to earth with a bump. Summoned to give evidence before the House Oversight and Governmental Reform Committee investigating the financial meltdown, Greenspan confessed to being in a state of ‘shocked disbelief’. He admitted: ‘I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were capable of protecting their own shareholders and their equity in the firms.’ He went on to say that the collapse of the subprime mortgage industry- and the vast, mostly hidden trade in derivative financial instruments- exposed a ‘flaw’ in free markets.
Greenspan’s ‘shocked disbelief’ that the self-interests of bankers, insurance companies and business CEOs would automatically protect the interests of their shareholders and firms is itself a matter of some disbelief. Was he so naïve, so blinded ideologically, to think that people in power, when faced with a chance to enrich themselves, will put the interests of their stockholders and firms before their own? Or was this confession of lack of insight a way of evading personal responsibility for what went wrong? Was he unaware of what had been happening in the US and the world for decades? Wall Street has been lavishly rewarding companies that treated their workers as a financial ‘expense’ and chucked them out whenever profits slightly dipped. Older ideas of ‘loyalty’ or a ‘social compact’ were killed off by the deregulated market system that Greenspan and others promoted.
What makes matters all the more interesting is that Greenspan had spent the past twenty years of his life as a faithful disciple of the novelist and pop-philosopher, Ayn Rand. The latter’s humanist cult of ‘rational egoism’ and ‘rugged individualism’ not only chimed in well with the Reagan-Thatcher era, but provided a generation of privileged college students with an intellectual justification for their self-indulgent lifestyles.
If Greenspan had been a committed Christian, Jew or Muslim, his faith would have been greeted with howls of derisive laughter in trendy intellectual newspapers and magazines. But because his religious faith rested not in the God of the Bible or Qur’an but in the gods of the ‘rational self’ and unbridled ‘market forces’, his disingenuousness has been ignored in these media circles. After all, many businessmen and economists, it is safe to say, worship at the altar of the same gods.
‘Self-expression’, ‘self-development’, ‘self-realization’ and other terms which stress the centrality of the self ignore the ways in which we rely on other people and other people rely on us. All collective human activity is based on trust and mutual dependency. A society fostering an extreme individualism will quickly self-destruct.
The old motto of the City of London was ‘My word is my bond’. Trust between individuals and confidence in the system are an absolute precondition for business. Corporations that falsely report their profits, and accountants that creatively manipulate the figures, may do well in the short term, but if they are found out, confidence in the whole system can ebb away. Once financial traders take advantage of the presumption of honesty to cheat and deceive, the whole apparatus of financial dealing is put in danger. When corruption becomes rife, markets can no longer function. Economic freedom only makes sense if it is given a moral foundation, of which truth-telling, promise-keeping and personal integrity are an indispensable part. Can a well-ordered market economy flourish in a cultural climate of moral relativism (where morality is treated as a matter of convention or individual choice)?
The present ‘financial crisis’ is, at root, a moral crisis, a collapse of faith. Financial institutions may attempt to meet the threat posed by personal dishonesty by introducing regulators and ‘watchdogs’. But they themselves still depend on trust- for instance, honest reporting by those being investigated. And how far can we trust the regulators themselves? Once the suspicion of deceit enters the system, there can be no stopping its corrosive power. The lack of integrity is never going to be healed by regulation alone.
[For Alan Greenspan's testimony before the US House Oversight and Governmental Reform Committee, see http://www.youtube.com/watch?v=55-A1-D3MR0 ]