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     Oct 2, 2007
The devil and Alan Greenspan
By Spengler

Does the devil exist? Former Federal Reserve chairman Alan Greenspan persuades me that he ought to. The much-discussed global credit crisis offers a singular sort of object lesson in the nature of evil. The world needs a devil of sorts to address such problems.

I refer to Greenspan's September 23 comment to the Frankfurter Algemeine Zeitung casting the first stone at the credit ratings agencies for causing the crisis in which the financial world finds itself. Greenspan reportedly said, "People believed [the credit



rating agencies] knew what they were doing. And they don't." Greenspan was speaking about the agencies' claim that packages of risky securities such as subprime mortgages were effectively risk-free, when they weren't. The ratings agencies, as any casual reader of the financial pages knows by now, caused such damage only because Greenspan and his fellow regulators allowed them to.

Who is to blame? This may be the first systemic crisis of the world economy in which everyone is to blame. As US Senator Jim Bunning said last week, "Numerous groups contributed to the mess, though some contributed more than others. At the top of the list is the former Federal Reserve chief ... and now author, Alan Greenspan." The American Securities and Exchange Commission is investigating the big banks to determine whether they bribed the rating agencies, in effect, to bias their judgment in order to help the banks peddle a tainted product. As Pish-Tush said to Nanky-Poo [1], "I am right and you are right all is right as right can be."

Everyone blames everyone else, and with good reason. The ratings agencies pronounced riskless a trillion and a half dollars' worth of derivatives that turned out risky after all. The banks sold it, and the Federal Reserve and other regulators let the world apply vast amounts of leverage to it. That leaves the rest of us waiting to see whether the house of cards will come down.

The world slid to perdition down the path of least resistance. Until the subprime scandal blew up in June, no one thought that he had done anything wrong. No one robbed the till, as in the case of WorldCom, or used corporate funds for personal indulgence, as in the case of Tyco, or cooked the books, as in the case of Enron. No one, in short, sold an unencumbered soul to the devil. All the ill was brought about by self-seduction of institutional corruption, in which feckless little men in corporate cubicles managed to destroy more wealth than the marauding hordes of ages past.

Truly satanic evil does exist, in the precise sense of rebellion against God. Nazism proposed a diabolical parody of the Biblical concept of election, in the form of a "master race" in the place of a "chosen people", which explains why Adolf Hitler was so keen to exterminate the authentic article. Lesser orders of evil in the form of official kleptocracy, thievish monopolies and ordinary corruption plague most of the world. But the present crisis, which yet may prove more damaging than the outcome of many acts of deliberate evil, was executed by corporate types who did little more than cut a few corners and assume that someone else would take responsibility for the problems they were creating.

In a broader sense, neither the regulators nor the bankers nor the ratings agencies are to blame. They conspired to turn risky subprime mortgages or corporate loans into supposedly riskless credit derivatives at the behest of the savers of Asia, who want to put their savings into riskless assets. They accommodated the requirements of American households, who wanted to build a retirement nest egg without saving, by trading houses back and forth to each other at endlessly higher prices financed at low interest rates through a trillion dollars a year of imported savings.

What could they have been thinking? The housing bubble in the United States and many other parts of the world could not continue forever, and could not forever permit Americans to save none of their income, as has been the case for the past decade. Chinese and other Asian savers cannot indemnify themselves against the risk that China's economy might fail, except, as usual, for the very wealthy. China and other emerging economies desperately require investment in infrastructure, and the return on such investments is likely to be very high. That is where Asian savings should be directed. But the fear of Asian savers, and the lack of vision of Asian governments, diverts their savings to the United States and other industrial countries.

What we have witnessed in the financial markets is not so much the mediocrity of evil, in political theorist Hannah Arendt's infelicitous phrase, but rather the evil of mediocrity. Most people have no special gifts or insight, no skills or powers that distinguish them from the mass of their fellows about them. They hope that the institutions to which they belong will care for them, and that if they do more or less what everyone around them does, they will not be singled out for ill fortune. Ordinary people are capable of great things under conditions of adversity - but for this to happen, someone must arrange the adversity.

The operative deadly sin appears to be not greed, but rather sloth. It was Johann Wolfgang von Goethe who made sloth into the first and greatest of all sins. In emulation of the Biblical Book of Job, the Lord says to Mephistopheles in Goethe's Prologue in Heaven:
I never have hated your ilk;
Of all the Spirits who deny,
I find the scamp the least tedious.
Man's endeavor tends all too easily towards slumber;
What he wishes for first of all is unconditional rest.
Therefore I am wont to assign him a companion
Who provokes and must act and appear as a Devil.
The devil somehow fits into the great scheme of providence. The world deserves just that sort of imp for its sloth and complacency and humbug. If the devil is loose in the credit markets, at least one can say that they had it coming. Of the other diabolical variety, the rebel angel, we had quite enough in the form of communism and fascism, and I shudder to think of its return. Hitler and Joseph Stalin were anything but mediocre. They very nearly took over the world. No one deserved that.

If Americans have to learn the hard way that they cannot surf the wave of the world's savings forever, it will be a painful but beneficial lesson. If Asians learn that they cannot avoid risk by placing their savings in America, it is worth the cost, although it may be substantial. The fate of 3 billion Asians is the risk to the world economy, and it is delusional to think that it can be insured. Asians must find the means to invest in their own future and buy their own risk.

Who started the global credit crisis? I don't mean to wax mystical over mundane issues in the markets, but I think that the devil did. He is just doing his job.

Note
1. In The Mikado, a comic opera with music by Arthur Sullivan and libretto by W S Gilbert.

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