Alan Greenspan’s Change of Heart

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One of these things is, and is not, like the others: Wallace, Greenspan, McNamara. Photo: Getty Images

There comes a time, late in the career of some public figures, when they realize that history is not going to cast them in the kindest light, and that a major break from the past is necessary to ameliorate that. A famous case is George Wallace, the former governor of Alabama and U.S. presidential candidate, who spent much of his career as America's leading bigot. Near the end, he recanted and hugged as many black people as would come within arm's length of his wheelchair. Then there was Robert McNamara, a war planner in World War II and secretary of Defense under Lyndon Johnson, who directed the indiscriminate fire-bombing of our enemies that killed millions of civilians. Later, he welled up for the camera in Errol Morris's The Fog of War and admitted that it had not all been such a great idea.

And now we have Alan Greenspan.

It might be unfair to equate Greenspan with a hateful racist or a man widely regarded as a war criminal, but there are some whose harsh critiques of the man suggest that Greenspan's actions — and inactions — were nothing less than a deadly assault on our country. (Read, for example, noted perma-bear Jeremy Grantham's quarterly newsletter.) It was Greenspan's policies, after all, that helped steer the world's largest economy into a ditch it might take us a generation to fully climb out of. Because of him, we are now forced to listen to clowns like this as if they have something important to contribute to the conversation. And God help us, maybe they do.

But now Greenspan, a famous compatriot of Ayn Rand and fervent believer that markets "self-correct," has come out in favor of the nationalization of the banks. This would be more impressive, however, if the 82-year-old Greenspan didn't also continue to work as an extravagantly paid consultant. Who forks over big bills to such a widely discredited codger? Bond giant Pimco would be one, and the now-famous hedge-fund king John Paulson. What do these two clients have in common? They stand to profit mightily if the banks get nationalized. Because here's what generally happens in a nationalization — the equity holders, which is to say anyone who owns the banks' stock, which could be you and me, get wiped out. The stock becomes worthless. That benefits Paulson, who, according to the latest records, maintains huge short positions on U.S. financials. The senior debt holders, which is to say the people who own the banks' bonds, which is to say firms like Pimco, are basically bailed out — the government will, in most scenarios, continue to pay the debt service, and the value of the bonds would actually rise in a nationalization, as the threat of default has been effectively nullified.

Do you follow all that? You don't really need to. All you need to know is that Greenspan is really not like Wallace or McNamara after all. He's not being contrite. It's not his place in history he's concerned about. It's his bank account.

Greenspan Says U.S. May Not Be Doing Enough to Promote Recovery [Bloomberg]