Did Ayn Rand cause the GFC?

It's a strange day when I excerpt a column by eccentric Leftist Matt Taibbi but I am running the excerpt below because he is nearly right. That Ayn Rand is responsible for trust in markets is of course just attention-getting nonsense. That trust goes back to Adam Smith, centuries ago, and even Left-leaning economics textbooks spell out the advantages of market systems.

But Smith also warned of a tendency of businessmen to collude in undermining markets -- thus disadvantaging the consumer. So Taibbi is doing little more than updating Smith with modern examples below.

What Taibbi fails to mention is the way big business has the Democratic party in its pocket -- thus ensuring that government also often favours big business at the expense of the consumer. The ties between Goldman and the Obama administration are of course now well known. Without government interventions of various sorts, there would be a lot more transactions governed purely by market forces -- to the great advantage of ordinary folk

SO GOLDMAN Sachs, the world's greatest and smuggest investment bank, has been sued for fraud by the American Securities and Exchange Commission. Legally, the case hangs on a technicality.

Morally, however, the case may turn into a final referendum on the greed-is-good ethos that conquered America in the '80s - and in the years since has aped other horrifying American trends in spreading across the Western world like a venereal disease.

When the globe was engulfed in the flood of defaults and derivative losses that emerged from the collapse of the US housing bubble two years ago, few understood that the crash had its roots in the lunatic greed-centred objectivist religion, fostered in the '50s and '60s by ponderous emigre novelist Ayn Rand....

Last year I wrote a brutally negative article about Goldman Sachs for Rolling Stone (I called the bank a "great vampire squid wrapped around the face of humanity") that sparked a heated debate. On one side were people who believed that Goldman is little better than a criminal enterprise that bilks the market, the government, and even its own clients in a bewildering variety of complex financial scams.

On the other were those who argued Goldman wasn't guilty of anything except being "too smart" and really good at making money. This was based almost entirely on the Randian belief system, under which the leaders of Goldman Sachs appear not as the cheap swindlers they look like to me, but idealised heroes, the saviours of society.

Rand's fingerprints are all over the Goldman story. The case involves a hedge fund financier, John Paulson, who went to Goldman with the idea of a synthetic derivative package pegged to risky US mortgages, for use in betting against the mortgage market. Paulson would short the package and Goldman would then sell the deal to suckers. The SEC's contention is that Goldman committed a crime when they failed to tell the suckers about the vulture betting against them on the other side of the deal.

The instruments in question - collateralised debt obligations and credit default swaps - fall into the category of derivatives, which are virtually unregulated in the US thanks in large part to the effort of former Federal Reserve chairman Alan Greenspan, a staunch Randian. In the late '90s, Greenspan lobbied hard for a law that deregulated the sort of interest-rate swaps Goldman used in its now-infamous dealings with Greece.

Confronted with public outrage, the leaders of Goldman will often appear genuinely confused. It's not an act. There have been a lot of greedy financiers and banks in history, but what makes Goldman stand out is its truly bizarre cultist/religious belief in the rightness of what it does. This Randian mindset is now ingrained in the American character.

This debate is going to be crystallised in the Goldman case. Much of America is going to reflexively insist that Goldman's only crime was being better at making money than IKB and ABN-Amro, and that the meddling government (in the American narrative, always the bad guy) should get off Goldman's Armani-clad back. Another side is going to argue that Goldman winning this case would be a rebuke to the whole idea of civilisation - which, after all, is really just a collective decision by all of us not to screw each other over even when we can.


Posted by John Ray (M.A.; Ph.D.). For a daily critique of Leftist activities, see DISSECTING LEFTISM. To keep up with attacks on free speech see TONGUE-TIED. Also, don't forget your daily roundup of pro-environment but anti-Greenie news and commentary at GREENIE WATCH . Email me here

1 comment:

  1. "What Taibbi fails to mention is the way big business has the Democratic party in its pocket ..."

    In the US, collusion between government bureaucrats and corporate bureaucrats has a long "Progressive" history.


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