Greenspan Shows His Anti-Capitalist Colors . . . Again

WASHINGTON, October 16, 2009--Former Fed Chairman Alan Greenspan is in the news again, calling on the government to use its coercive powers to break up banks that are “too big to fail.”  “I don’t think merely raising the fees or capital on large institutions or taxing them is enough,” Greenspan said.  “If they’re too big to fail, they’re too big.” 

“Is Greenspan campaigning for the position of ‘Size Czar’ now?” asked Alex Epstein, a fellow with the Ayn Rand Center.

“The problem with ‘too big to fail’ is not that there is actually some magic size that is ‘too big’--it is the bailout promises that go along with being big, which create perverse incentives. The solution is to phase out ‘too big to fail’ and all other bailout programs, and replace them with a free market in banking, which would reward sound long-term lending and borrowing practices and punish irresponsible ones. Without bailout policies, financial institutions would be truly responsible for their actions, and would need to choose their structure, leverage, policies, and size to ensure long-term success.

“The last thing we need is more czar-like powers for the Alan Greenspans of the world. As Greenspan demonstrated by inflating the housing bubble during his tenure as Fed Chairman, government power to manipulate markets is a financial weapon of mass destruction.”

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Alex Epstein was a writer and a fellow on staff at ARI between 2004 and 2011.