Greenspan Says That His Free-Market Ideology Was Flawed
Here's something that probably doesn't happen too often. Former Federal Reserve chairman Alan Greenspan had a crappier day than you did. He had to admit before our federal government that his free-market, anti-regulation ideology was "flawed." Ouch.
From Bloomberg:
"Yes, I found a flaw,'' Greenspan said in response to grilling from the House Committee on Oversight and Government Reform. ``That is precisely the reason I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well.''
...
The admission that free markets have their faults was a shift for the former Fed chairman who declared in a May 2005 speech that ``private regulation generally has proved far better at constraining excessive risk-taking than has government regulation.''Today Committee Chairman Henry Waxman, a California Democrat, said Greenspan had ``the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis.''
``You were advised to do so by many others,'' he told Greenspan. ``And now our whole economy is paying the price.''
Waxman and other lawmakers repeatedly interrupted Greenspan as he answered their questions, in contrast to deference to his testimony while he was Fed chairman.
Greenspan then claimed that the Fed had no idea how large the subprime mortgage market had become until late 2005, says Bloomberg.
Greenspan Concedes to `Flaw' in His Market Ideology (Update2) [Bloomberg]
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I want to see his bank accounts and trading accounts. This guy is full of shit, he knew what he was doing all along.
Crappier day?
I just closed a foreclosed house last week. Bought $13k worth of stuff on my credit cards to fix it up. Getting married next Friday.... and I was just laid off today.
I'd rather be Alan Greenspan today. :-\
Is it too late to order an Alan Greenspan mask for Halloween?
I love that picture - BOOGA BOOGA!!!
Of course it's flawed, there's no such thing as a perfet market but I still don't see how regulation is better than a well-diversified portfolio that manages risk.
@testsicles: But the firms holding the repackaged subprime loans weren't managing risk very well, were they?
So Alan Greenspan is essentially saying that naked laissez-faire capitalism isn't inherently nirvana?
I feel somewhat... vindicated. Just a little.
@Red_Flag: No, not at all. They fail, thanks for playing, pick up your "I Was Part of A Stupid Corporation" t-shirt on your way out.
@ViperBorg: He's at a position now where he can't be held accountable any more, so where's the harm really.
This has been the pattern in this country for the last 20 years or so.
@Red_Flag: Yeah, that's always been a misconception of a free market, that's it's perfect with no risk of losing money or bankruptcies and it just keeps going up Up UP! The free market is a harsh teachers, gives the test first and the lessons later.
@ViperBorg, @Pixelantes Anonymous: Maybe he'll just write a tell-all book and make money off his "confessions" and "insights" into the mess.
@testsicles: Those are exactly my sentimonies!
Yes, this situation sucks, and some sort of failure is inevitable in any enterprise (even socialist!). The problem is that these banks pretty much knew (and were right) that they wouldn't have to pay the price for failure. Private markets do regulate pretty well... but not when they know someone else is going to clean up their messes for them.
while acting as fed chairman, his accounts were in a blind trust, and he was not able to make his own investment decisions as it would be a conflict of interests
A big duh moment. Friedman (Milton, that is) was also wrong!
Greenspan, sadly, must be the last economist in the country to realize this and he was in charge for so may years. The repubs try to deflect everything to the democrats who do deserve some blame. But the philosophy was republican (Phil Gramm in charge); the congress was republican 1994-2006, and the presidency was republican. This was not a problem of being forced to loan money to people who could not repay, it was the problem of people being delighted to do so and setting up a giant ponzi scheme, taking profits and passing on risk to others. Amazing but true. Money makes people do funny things.
Even if they do put in regulations, banks won't dare to go back to subprime loans and shady lending practices because of all the damage its' done to them.
deregulation equals more greed.
lol now we're blaming Greenspan. Glad the democrats finally talked someone into taking the fall, and on their way down, blame the free market for the problem the government created.
Here is an interesting article. [www.ldsmag.com]
Why do I bother. I know we're going to deny reality, blame capitalism to hasten the switch to socialism. Here comes trickle up poverty!
@laserjobs: No, I don't think Greenspan had his hands in anything.
I think he believes in an Ayn Rand style world where all the elite capitalists are high-minded and work so hard because it's part of their moral fabric. For them it's not about the money so much as the high minded ideals of working hard and getting what they deserve. A world where greed came from the lowlifes who didn't want to work for a living.
In other words, Greenspan has the worldview of a teenager dumb enough to be impressed by unrealistic schlock like "Atlas Shrugs".
Incredibly smart about markets. Not so smart about humans and their greed. That's Alan Greenspan.
I ask this in all earnestness: do you think that the President's action of nationalizing the banks is a step toward socialism? Last time I checked, the Republican platform was all about getting government out of business, private property, free trade and all that.
Nationalizing the banks, emergency or not, isn't exactly a resounding endorsement of laissez-faire capitalism, is it?
I ask this in all earnestness: do you think that the President's action of nationalizing the banks is a step toward socialism? Last time I checked, the Republican platform was all about getting government out of business, private property, free trade and all that.
Nationalizing the banks, emergency or not, isn't exactly a resounding endorsement of laissez-faire capitalism, is it?
String 'im up.
@Pixelantes Anonymous: I don't believe someone lives their whole life believing in something, then all of a sudden, changes their mind, because a bubble bursts. Bubbles bursts every few years. I'm going to put my tin foil hat on for a moment, and say, he was asked to take the fall for this, and for some reason, he did. I refuse to believe he flip-flopped on this.
@CaliforniaCajun: On the other hand, he probably does know that the title is actually Atlas Shrugged.
lol.
the irony of this is that some of you guys are blaming free market economics, when we do not practice a free market, and no one claims that we do. a mixed market economy is by no means free market. blaming the free market on a mixed market's problems is purely rhetoric.
its kind of like blaming santa for not getting you everything you wanted for christmas. its santa's fault for pretening to exist by giving presents in the first place, but then its your parents fault for not being able to provide everything you could possibly desire.
@CaliforniaCajun: I think he believes in an Ayn Rand style world where all the elite capitalists are high-minded and work so hard because it's part of their moral fabric. For them it's not about the money so much as the high minded ideals of working hard and getting what they deserve. A world where greed came from the lowlifes who didn't want to work for a living.
Actually, had the market been allowed to crash, as told in Atlas Shrugged, the low-lifes who thought only about greed would have gone bankrupt and the adept businessmen WOULD have been able to take advantage of the undervalued mortgages.
Just like you can cause a LOT of damage when you stop a surgeon in mid-surgery, the bailout is going to cause a LOT MORE damage than if we allowed the market to crash and heal itself. There would be some pain, but not as much and for not NEARLY as long as what we are about to face for the next decade.
Problem is, I new it since 2002/2003. I mean when Liberals back in 2002 where whining that no one would dare attack America or New York because it would sink the world's eocnomy I said Islamofacism cares not about money there are those like Osama Bin Laden who live under a rock, two months latere 9/11 happenened.
However, I date black women. For years, I have seen the same thing. How are all these women going to own homes but they don't have jobs? Putting that you braid hair out of your home isn't going to pay the bills.
It's crazy, and is he serious? You don't know giving good loans to people who cannot pay it off or don't deserve to have a loan in the first place a good idea?
I've seen this movie before. Remember 1992 ? of course you don't,so I 'll refresh...
Young bon vivant and governor of Arkansas Bill Clinton throws his hat into the ring for president. With a 80% plus approval rating,president Bush's advisors dismiss the young dilletante as a minor annoyance on the way to a second term...(Many conservative commentators call Clinton a Socialist).
Jan. 20,1993. Bill Clinton sworn in as 42nd president.One especially vocal critic (Rush Limbaugh) calls Clinton a sure fire one term laughingstock.Rumors that Clinton has a hammer and sickle tattoo on his backside remain just that,rumors.
1993. Clinton proposes raising taxes for people making about what Limbaugh and his buds make. Hilarity ensures as Republicans try,but fail,to block the tax increase.Limbaugh makes his now infamous "million dollar bet" that the economy will tank and jobs will be vaporized.Many prominent Republicans publicly announce plans to flee the country for tax havens overseas.
1994-Stupidly passing a retroactive tax increase and trying to have hysterectomies on demand for free,Clinton sees the congress return to Republican control. Many Democrats fear a wholesale gutting of several cabinet level departments in the Republicans cross hairs. A dark cloud looms over Washington's gravy train lane where lobbyists cower in terror...
1995- 1999 Economy booms. Socialism is delayed until the Republican adminstration of George W. Bush.
So, was the wolf at the door then,or now ? I mean,Repubs call everyone to the left of Albert Speer a socialist (just like Speer did). Were you lying then or now? Do you see why no one trusts the most liberal Republican ever nominated ? If you are going to have Socialism,then I guess people want it run by a real Socialist...
@jonworld: You say this with such conviction. You really don't think that in 15 years all of the 25 year old investment bankers who are in 4th grade now will learn the lessons of 2008?
I wish I was as naive as you, but human nature contradicts your theory.
I bet he was shocked, after all those years of being treated like the reincarnation of the God of Economic Theory. Now he's just an old guy who did a bunch of stupid things that led to economic problems. Enjoy your legacy, Mr. Greenspan.
No serious person believes Fannie and Fredy were the cause of the mortgage crisis. A contributing factor perhaps but not the cause.
Lack of supervision of the kids in the playground, the ability to pass off risk and good old fashioned short term greed seem more likely.
@Snarkysnake: Read the article and I may read your wall of text someday
@Jabberkaty: Glad you enjoyed it!
@jonworld: Of course they won't... they will move on to another form of blatant speculation that they believe has no downsides.
Waxman: Do you think you were wrong about >such and such
Greenspan: No, but let me finish, I was wrong about >such and such<.
Never give him the answer he's fishing for...never let HIM tell YOU you're wrong...YOU tell HIM you were wrong. Weird.
Bad day will be Jan 20th, when a socialist-leaning know-nothing appointed by a reactionary electorate will pursue a mandate given to him by the likes of the free-market haters here (and in Congress) to impose a massive burden of regulation that will make SarbOx look like a company picnic.
@Bladefist: To be fair, in his testimony he was contrite about a very specific part of free market self-regulation that he mis-read. He didn't actually say that his or anyone else's free market ideas are flawed. What he said was, that his assumptions that the market would self-regulate based on a long-term profit motive and fiduciary responsibility to shareholders was flawed. And he hit the nail on the head ... companies took too much risk, because the short-term profits outweighed the risk of long-term losses. So he's not exactly flip-flopping on a lifelong belief in free-markets, he's just saying that this little bit of it (short vs. long term profit/risk) needs to be better regulated.
In that sense, his testimony will also serve a much greater purpose than just him taking a fall... despite this mess, he is still a highly regarded free-market proponent. His effective recommendation of a specific instance of government regulation will help get that regulation passed in what is still a very free-market leaning country.
@AtomicPlayboy: They never blame the policies, just the people. If Obama failed to implement his liberal plans, in 2012 we'll have a new hack,with the same plans, and a few new catch phrases, and people fainting at campaign speeches
@AtomicPlayboy: I agree, and that sucks. On the bright side, that should keep me employed for quite a while...
/auditor & SOX guy
@humphrmi: And this is something that any clear reading of Adam Smith would mean you should not be surprised. But Adam Smith if frequently misquoted or understood by those that have not actually read Adam Smith. Perhaps this is based on his Ayn Rand nonsense.
Ah. Someone actually taking blame. He's gonna need a bullet-proof vest.