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FT:‘I made a mistake,’ admits Greenspan


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The mistake? thinking the private sector would always act in it's own best interest or the best interest of the consumer, in the absense of regulation. The mistake? believing Milton Friedman..

http://www.ft.com/cms/s/0/aee9e3a2-a11f-11dd-82fd-000077b07658.html

‘I made a mistake,’ admits Greenspan

Alan Greenspan, the former Federal Reserve chairman, said on Thursday the credit crisis had exceeded anything he had imagined and admitted he was wrong to think that banks would protect themselves from financial market chaos.

“I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders,” he said.

In the second of two days of tense hearings on Capitol Hill, Henry Waxman, chairman of the House of Representatives, clashed with current and former regulators and with Republicans on his own committee over blame for the financial crisis.

Mr Waxman said Mr Greenspan’s Federal Reserve – along with the Securities and Exchange Commission and the US Treasury – had propagated “the prevailing attitude in Washington... that the market always knows best.”

Mr Waxman blamed the Fed for failing to curb aggressive lending practices, the SEC for allowing credit rating agencies to operate under lax standards and the Treasury for opposing “responsible oversight” of financial derivatives.

Christopher Cox, chairman of the Securities and Exchange Commission, defended himself, saying that virtually no one had foreseen the meltdown of the mortgage market, or the inadequacy of banking capital standards in preventing the collapse of institutions such as Bear Stearns.

Mr Waxman accused the SEC chairman of being wise after the event. “Mr Cox has come in with a long list of regulations he wants... But the reality is, Mr Cox, you weren’t doing that beforehand.”

Mr Cox blamed the fact that congressional responsibility was divided between the banking and financial services committees, which regulate banking, insurance and securities, and the agriculture committees, which regulate futures.

“This jurisdictional split threatens to for ever stand in the way of rationalising the regulation of these products and markets,” he said.

Mr Greenspan accepted that the crisis had “found a flaw” in his thinking but said that the kind of heavy regulation that could have prevented the crisis would have damaged US economic growth. He described the past two decades as a “period of euphoria” that encouraged participants in the financial markets to misprice securities.

He had wrongly assumed that lending institutions would carry out proper surveillance of their counterparties, he said. “I had been going for 40 years with considerable evidence that it was working very well”.

Republicans on the committee dissented from some of the Democratic attacks, and said the government-backed housing entities Freddie Mac and Fannie Mae had also been to blame.

“It wasn’t deregulation that allowed this crisis,” said Tom Davis, the senior Republican on the committee. “It was the mish-mash of regulations and regulators, each with too narrow a view of increasingly integrated national and global markets.”

Mr Greenspan said that when, as Fed chairman, he declined to advocate regulating credit default swaps – derivatives that have been blamed for worsening the crisis – he had been following the will of Congress.

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This was an amazing story, I saw it on NBC Nightly News last night.

The most powerful libertarian in the history of the world admitting he was wrong about government regulation.

Makes the continued posts in the Tailgate from the Ron Paul crowd even more amusing, really. :)

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Read about it this morning. I was a little surprised to see the weakness in Greenspan's reasoning. I would have thought his understanding of the markets were completely based on data but actually there is idealogy in there as well:

“I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders,” he said.

Kind of an odd defense. While it seems that 99.9% of the time this logic will hold true in a free market, you'd think a guy like Greenspan would have a lot of questions for the times when this adage didn't hold up.

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you'd think a guy like Greenspan would have a lot of questions for the times when this adage didn't hold up.

umm, he did. Didn't you read the article? :)

That said, it's amazing to me that there are still those who are stuck in the 17th Century of economic thought. Dergulate everything, let the invisible hand guide all. Trade with gold, throw everything else out the window.

For those people, we should grant them their wish. But we should also make them give up all comforts beyond the 18th century. No running water, no toilets, no electricity, etc. They can trade their silver and gold nuggets for bread, and laugh at the rest of us who decide to participate in a flawed system. :)

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Read about it this morning. I was a little surprised to see the weakness in Greenspan's reasoning. I would have thought his understanding of the markets were completely based on data but actually there is idealogy in there as well:

Kind of an odd defense. While it seems that 99.9% of the time this logic will hold true in a free market, you'd think a guy like Greenspan would have a lot of questions for the times when this adage didn't hold up.

I find it a laughable defense (at least as stated in the piece). Any study of history or complex systems in general shows that entities will frequently act counter to their long term interest w/ respect to short term gaines when judged with 20/20 hindsight.

The problem, in most cases, isn't that they chose to neglect their long term interest, but that they don't understand the results of their actions w/ respect of their long term actions due to the complexity of the system, missing data, or false data.

These things happen. Its a fact of life. They happen in every complex system.

Now, the question is, does introducing more complexity into the system (e.g. goverment regulation) prevent it from happening in severity or frequency and is the penalty paid (in reality even something like a goverment regulation is a decrease in entropy, which is thermodynamically unfavorable) for that decrease (in severity or frequency) worth the value w/ respect to the penality paid.

If his defense was, 'I did not think this would happen.', then I've lost a lot of respect for him. If his defense was, 'I thought the penality for goverment regulation was not worth the pain with respect to economic growth (which he alludes to), but now believe that judgement was wrong.' that's a different story.

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We are all Keynsians again.

No, Keynes is still a dinosaur.

What we're seeing is simply an evolution of a science. Where the contribution of everyone from Smith to Keynes is wrapped up into one. Just like the adjustment that Einstein made to Newton's theories. Although it disproved Newton's theories, it didn't render them obsolete. It simply ammended them. Modern day physics owes a huge debt of gratitude to both.

Of course, there are those who are only interested in the economics of the 18th century. All other thought be damned. Like I said- we should oblige those folks. Pitch your tents and light your fires, ****es :)

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No, Keynes is still a dinosaur.

What we're seeing is simply an evolution of a science. Where the contribution of everyone from Smith to Keynes is wrapped up into one. Just like the adjustment that Einstein made to Newton's theories. Although it disproved Newton's theories, it didn't render them obsolete. It simply ammended them. Modern day physics owes a huge debt of gratitude to both.

Of course, there are those who are only interested in the economics of the 18th century. All other thought be damned. Like I said- we should oblige those folks. Pitch your tents and light your fires, ****es :)

You are correct.

I guess I was saying that the Keynesian school is again relevant, after a couple of decades wandering in the wilderness while Emperor Milton Friedman sat on his gilded throne.

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http://www.washingtonpost.com/wp-dyn/content/article/2008/10/15/AR2008101503166.html

I know this article has already been posted, but I think it needs to be seen again. Peter Schiff is the only guy out there who has been right about everything. He predicted this crisis years ago, and it's unfolding exactly as he said it would. Perhaps we should listen to him.

Greenspan can save face all he wants, but he helped create this mess. However, the bigger problem is the Federal Reserve system itself; Greenspan is merely a symptom of the disease.

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This doesn't disprove those that advocate for free markets. :doh:

First one must have a free market to be dis-proven and any one who thinks we live with free markets at anytime during Greenspan's reign is uninformed.

All Greenspan is saying is that doing nothing while other regulations were in place was fallacy. If you regulate one you must regulate all which he failed to do.

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This doesn't disprove those that advocate for free markets. :doh:

First one must have a free market to be dis-proven and any one who thinks we live with free markets at anytime during Greenspan's reign is uninformed.

All Greenspan is saying is that doing nothing while other regulations were in place was fallacy. If you regulate one you must regulate all which he failed to do.

Communists make the same arguments :2cents:

there was never a pure communist society either

pure capitalism and communism are utopias, what must judged is the state we are in while striving for whatever utopia we pick (not that we should strive for either of those)

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This was an amazing story, I saw it on NBC Nightly News last night.

The most powerful libertarian in the history of the world admitting he was wrong about government regulation.

Makes the continued posts in the Tailgate from the Ron Paul crowd even more amusing, really. :)

Right, because it's just that simple.:rolleyes:
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umm, he did. Didn't you read the article? :)

That said, it's amazing to me that there are still those who are stuck in the 17th Century of economic thought. Dergulate everything, let the invisible hand guide all. Trade with gold, throw everything else out the window.

For those people, we should grant them their wish. But we should also make them give up all comforts beyond the 18th century. No running water, no toilets, no electricity, etc. They can trade their silver and gold nuggets for bread, and laugh at the rest of us who decide to participate in a flawed system. :)

This would WORK if we didn't bail them out.. its the safety net that keeps companies from showing restraint.

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This would WORK if we didn't bail them out.. its the safety net that keeps companies from showing restraint.

Yes it would work, sorta. With massive booms and horrible disruptive crashes, over and over. Just like the good old times before there was any regulation (they called them "panics" back then).

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Spare me.

The man is simply trying to deflect blame for his reign as head of the fed. His is inability to accept personal responsibility is astounding. The financial sector in this country is one of the most regulated sectors in this country, actually in the world. And what passes as deregulation in DC isn't always deregulation.

Oh and Zoony, check this Paul link. He voted against the Gramm-Leach-Briley "deregulation" bill.

http://reason.com/blog/show/129593.html

Say what you will about Paul, but he nailed the crisis and saw it coming.

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I guess I was saying that the Keynesian school is again relevant, after a couple of decades wandering in the wilderness while Emperor Milton Friedman sat on his gilded throne.

God you are full of it. If you actually believe that the markets have gotten freer ( in this country anyway) in the last 30 years or so you don't know what you are talking about. Look at the size of government and the regulatory state and get back to me.

By the way, this is why I don't want libertarians to get in positions in power. While Greenspan may have been personally libertarian, he didn't govern like one.

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Yes it would work, sorta. With massive booms and horrible disruptive crashes, over and over. Just like the good old times before there was any regulation (they called them "panics" back then).

This should be posted in every "The Fed should be done away with" thread.

"Panic" then = "Crisis" now.

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This was an amazing story, I saw it on NBC Nightly News last night.

The most powerful libertarian in the history of the world admitting he was wrong about government regulation.

Makes the continued posts in the Tailgate from the Ron Paul crowd even more amusing, really. :)

This would WORK if we didn't bail them out.. its the safety net that keeps companies from showing restraint.
1929 called, and said you're full of ****

Zoony, there was a recent Wall Street Journal OP-ED tath backs up Thiebear's assertion. That the institutions with bad paper need to fail to really clear this crisis, and anything else is just delaying the piper being paid. It seems we need some regulations that limit what corporations can market, and the debt/equity ratios that they must maintain. Other than that, the government should just stay out and let the markets fail when greed takes over. I guess we could help that by passing a law that if a particular CEO/Board of a corporation caused a "panic" that they are hung by the neck until dead publicly, we would also go a long way to making sure that the excessive risk takers were reigned in a tad.

It's kinda sad that with both main parties complicit in not only the root causes of the problem, and in pushing thru the socialization of the banks, you take the moment to distract yourself and others by lashing out at the policies of a party not in power.

/hands you the T.O. silly distractions award.:notworthy

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Greenspan made a mistake. But, its not what he is owning up to. His mistake was in creating artificially low interest rates for a prolonged period of time that created an environment where even risky borrowing seemed to make sense. Financial organizations were lending out risky loans because they could so easily access cheap short-term money on an artificially low fed rate.

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Greenspan made a mistake. But, its not what he is owning up to. His mistake was in creating artificially low interest rates for a prolonged period of time that created an environment where even risky borrowing seemed to make sense. Financial organizations were lending out risky loans because they could so easily access cheap short-term money on an artificially low fed rate.

Damn you, don't ruin the narrative.

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