FT:‘I made a mistake,’ admits Greenspan

[JMS]

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.

[FanboyOf91]

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.

:rolleyes:

[zoony]

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. :)

[Midnight Judges]

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.

[zoony]

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. :)

[PeterMP]

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.

[Predicto]

We are all Keynsians again.

[zoony]

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, bitches :)

[Prosperity]

Well we can only hope our economic theories are improving because there have definitely been times were the contemporary thinking of the day was definitely NOT progress...

[Predicto]

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, bitches :)

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.

[wilsonian]

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.

[GibbsFactor]

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.

[Prosperity]

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)

[Koolblue13]

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:

[Thiebear]

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.

[zoony]

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 ****

[Predicto]

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).

[luckydevil]

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.

[PeterMP]

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).

http://en.wikipedia.org/wiki/Long_Depression
http://en.wikipedia.org/wiki/Panic_of_1907
http://en.wikipedia.org/wiki/Panic_of_1896
http://en.wikipedia.org/wiki/Panic_of_1893
http://en.wikipedia.org/wiki/Panic_of_1884
http://en.wikipedia.org/wiki/Panic_of_1873[/URL (http://en.wikipedia.org/wiki/Panic_of_1873)]
[URL]http://en.wikipedia.org/wiki/Panic_of_1857
http://en.wikipedia.org/wiki/Panic_of_1837
http://en.wikipedia.org/wiki/Panic_of_1819
http://en.wikipedia.org/wiki/Depression_of_1807

[luckydevil]

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.

[PleaseBlitz]

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.

[MurrayH81]

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

[luckydevil]

While we are at it

I must have missed the memo about European regulators and central bankers being closet libertarians.

[chaddukes]

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.

[luckydevil]

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.

[zoony]

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.


I think Greenspan bought monetarist theory hook, line, and sinker. I think when we look back on it 50 years from now, that will be the story. We all knew he was a monetarist- but I think what history will show is that is ALL he was.

That markets are inherently efficient, and always strive towards equilibrium. And that the only job of the government is to keep its foot on the gas, or take it off, depending on how the engine is running. (i.e. printing money)


While monetarism and laissez faire policies certainly have their benefits, they are not without flaw. Easily the most predictable flaw being that markets are made up of human beings, and rarely do humans act in the collective good on their own, or for the good of the market. That is a side effect only of an individuals actions, not intentional. It should be the job of government to step in and help / correct markets and put rules in place where markets have shown themselves to be inherently flawed.

Just like, to Greenspan's point, heavy regulation and socialism also have their disadvantages as well. Which is why, for the most part, the Democrats suck as a political party. They are very strong now, of course, as well they should be- given the failure of monetarism and the completely hands off approach by conservatives and republicans that have ultimately led to this collapse.

IMO, Greenspan nailed it when he said we need to proceed very carefully, for fear that we swing too far in the other direction. Hopefully the Democrats take it to heart. Both parties, for that matter- I say Democrats b/c they will be in power and the country will be demanding reform.

So nothing new here- either end of the spectrum is wrong.

And if we are lucky and smart about all of this, the country can use this crisis as a learning experience, and further refine our system- which is still the most perfect in the world.

[FanboyOf91]

http://en.wikipedia.org/wiki/Long_Depression
http://en.wikipedia.org/wiki/Panic_of_1907
http://en.wikipedia.org/wiki/Panic_of_1896
http://en.wikipedia.org/wiki/Panic_of_1893
http://en.wikipedia.org/wiki/Panic_of_1884
http://en.wikipedia.org/wiki/Panic_of_1873[/URL (http://%5BURL%5Dhttp://en.wikipedia.org/wiki/Panic_of_1873)]
http://en.wikipedia.org/wiki/Panic_of_1857
http://en.wikipedia.org/wiki/Panic_of_1837
http://en.wikipedia.org/wiki/Panic_of_1819
http://en.wikipedia.org/wiki/Depression_of_1807

I've always wanted to do that, but could never spare the time. :applause::notworthy

[wilsonian]

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.

Exactly. :applause:

[Burgold]

A thousand economists and a thousand opinions, but very few solutions.

[luckydevil]

I think Greenspan bought monetarist theory hook, line, and sinker. I think when we look back on it 50 years from now, that will be the story. We all knew he was a monetarist- but I think what history will show is that is ALL he was.

That markets are inherently efficient, and always strive towards equilibrium. And that the only job of the government is to keep its foot on the gas, or take it off, depending on how the engine is running. (i.e. printing money)


While monetarism and laissez faire policies certainly have their benefits, they are not without flaw. Easily the most predictable flaw being that markets are made up of human beings, and rarely do humans act in the collective good on their own, or for the good of the market. That is a side effect only of an individuals actions, not intentional. It should be the job of government to step in and help / correct markets and put rules in place where markets have shown themselves to be inherently flawed.

Just like, to Greenspan's point, heavy regulation and socialism also have their disadvantages as well. Which is why, for the most part, the Democrats suck as a political party. They are very strong now, of course, as well they should be- given the failure of monetarism and the completely hands off approach by conservatives and republicans that have ultimately led to this collapse.



Lets be clear here, monetarism and laissez faire is not the same thing. Monetarism and keyenism actually have a great deal of common. They might disagree on the causes of the crisis, but there solutions are awfully similar. Oh and republicans have not been "hands off". They have been hands on. The regulatory state has grown under Bush's watch.

Oh, did you read the interview Anna Schwartz in the wsj the other day? She blamed loose monetary policy ( started by Greenspan and continued with Bernanke) as well and believe Paulson and Bernanke actions have been harmful. She seems to be in the let them fail camp and that intervention will cause more harm than good.

[JMS]

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.


The problem is there aren't any personal concequences for meeting their short term goals at the expense of everybodies long term interests. That's what deregulation did for us. It eliminated concequences..

Lehman's CEO is walking with his bonuses and salary, and his senior staff has taken billions out of the sinking ship to soften their own landings.



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


They happen when folks see no meaningful negative concequenses for bad behavior. The company sinking isn't meaningful to the guy who just made a lifetimes fortune on the sinking.



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.


I'm not sure but did you just suggest we put all the guilty in a pot and boil them alive?



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.

I think his defense was both. Greenspan gave us decades of prosperity, and his inovative flexible economic ideas were revolutionary. It's pretty amaizing he didn't screw up far worse when you think about how innovative he was..

[zoony]

Lets be clear here, monetarism and laissez faire is not the same thing. Monetarism and keyenism actually have a great deal of common. They might disagree on the causes of the crisis, but there solutions are awfully similar. Oh and republicans have not been "hands off". They have been hands on. The regulatory state has grown under Bush's watch.

Oh, did you read the interview Anna Schwartz in the wsj the other day? She blamed loose monetary policy ( started by Greenspan and continued with Bernanke) as well and believe Paulson and Bernanke actions have been harmful. She seems to be in the let them fail camp and that intervention will cause more harm than good.


But at the heart of monetarist theory is that everything will be okay based on the supply of money. Sure monetarist theory doesn't address regulation- it doesn't have to. But I think you get my point :)

And the biggest failure that has gotten us into this mess have been as a direct result of deregulation, or no regulation at all. i.e. increased debt leveraging (as allowed by the SEC), and credit swaps, which are unregulated, period.

So while you can make the blanket statement that regulation has increased, it has nothing to do with the mess we're in, or the problem at hand. Quite the contrary, actually.

[zoony]

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.



I think it's a bit (no, a lot) silly to think that the greed and bad business decisions that got into this mess would not have occured had those who were guilty of it known that the government would not be there to bail them out. Fact is, most of them just went tits-up. The government hasn't gotten involved until recently. Ask PleaseBlitz about his company :)

These were short-term decisions based on greed. Poor management, poor decision making, all made possible by de-regulation, an abundant supply of money, and no real accountability.

The perfect storm, really. I hope we learn from it.

[luckydevil]

So while you can make the blanket statement that regulation has increased, it has nothing to do with the mess we're in, or the problem at hand. Quite the contrary, actually.

No, the point was to dispel the myth that republicans have been "hands off". They haven't. They did increase regulation, you know things like Sarbanes- Oxley. An act that was supposed to prevent the current crisis, whoops. Now some of the "deregulation" that did occur ( under Clinton), I would argue wasn't deregulation at all. The Paul link actually does a good job of addressing why Paul opposed that form of "deregulation".

Now with that said, I would argue that in some cases deregulation is not a good thing. Sometimes government created crisis requires government solutions to minimize the pain.

[ACW]

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/19/AR2008101901416.html
Are you some kind of socialist JMS? Seriously.

[PeterMP]

The problem is there aren't any personal concequences for meeting their short term goals at the expense of everybodies long term interests. That's what deregulation did for us. It eliminated concequences..

Lehman's CEO is walking with his bonuses and salary, and his senior staff has taken billions out of the sinking ship to soften their own landings.

1. Regulation doesn't really cause consequences. It may modify behaviour by not letting things happen, but if, for example, I can do the samethings w/ regulation or not, but the regulatoin requires me to do more paperwork. Chances our the end result will not be different.

2. Watch this. I'm going to disagree w/ you, and then disagree w/ you on the same point:

2A. Just taking Lehman's as an example. I don't think the CEO there ever thought-'Hey, this is going to be bad for the company, but by then I'll have made my billions and be ready to walk away.' I do bet if you could go back and time and say, 'Hey, be careful this is going to blow up big.', he'd change his behaviour and the outcome would be different so essentially I disagree. The result wasn't because they neglected the long term view, but because they didn't see it possibly because they didn't really think about, but not neglect.

2B. I agree. I wonder how much of this has changed as a result of the management of companies, which is sort of related to size. If there is a family basis for the company, I wonder if there isn't more of a multi-generational view of the company (e.g. I want to leave this for kids and even grandkids AND I want to run this right to honor my dad and grandparents) that wouldn't reduce some of this. How much of this is because not just the CEO's but really nobody related to the company is actively thinking 50 years down the road.

[polywog999]

Bumping this thread because of It's sheer awesomeness. Great article and Zoony at his best. While I am a Libertarian, I cannot argue with this thread.It is quite compelling.

[aREDSKIN]

And the biggest failure that has gotten us into this mess have been as a direct result of deregulation, or no regulation at all. i.e. increased debt leveraging (as allowed by the SEC), and credit swaps, which are unregulated, period.

So while you can make the blanket statement that regulation has increased, it has nothing to do with the mess we're in, or the problem at hand. Quite the contrary, actually.

1/2 right 1/2 not so much.

See this for a complete analysis of what TRIGGERED the current financial meltdown. Complete and utter stupid govt mandated policy coupled with the greed of Wall Street taking advantage of said policy and creating worthless securities and peddling them to the highest bidders. A very enlighting piece IMO.


http://www.google.com/url?source=imgres&ct=img&q=http://imgarchive.info/201008/th_545158.jpg&sa=X&ei=vkeTTKvpF4H_8AbD39SNDA&ved=0CAQQ8wc4EA&usg=AFQjCNF_QBEAyqAkRQNIlfLNQGw1kWBgVA


http://www.pbs.org/wgbh/pages/frontline/warning/

[JMS]

Wow this is an old thread...

Yep Abraham Lincoln said, you can fool some of the people all the time, all the people some of the time, but not all of the people all of the time. Alan Greenspan / Milton Friedman changed that too.... You can't ever fool most of the people with money to invest any of the time. The market is never wrong.


1/2 right 1/2 not so much.

See this for a complete analysis of what TRIGGERED the current financial meltdown. Complete and utter stupid govt mandated policy coupled with the greed of Wall Street taking advantage of said policy and creating worthless securities and peddling them to the highest bidders. A very enlighting piece IMO.

I have not seen the frontline piece yet. And I'm going to. But your statement just leaves me cold. The suggestion that our government ( both parties) would just arbitrarily decide to impose anything on the best connected, most poltical savy, and heavily lobbied business nationally; to my mind shows a total and complete lack of understanding over how our government works, how our party system works....

What's more plausable... The Government decides it wants poor people who can't afford loans to get them, so they ( both parties Republican and Democrats jointly) create/subsidize the infrastructure to sell those loans to consumers? Your contention is the Government bipartisanly rammed this down the banking industries throats, and that industry didn't make a peep in the press about being force fed this "mandate"? Then to make your premise even less plausable the big money men jump in with both feet buying up those packaged loans bundled into massive bonds worth Trilliions..... ultimately leading to disaster.

Or the big money boys want new vehicles for their investment dollars. Alan Greenspan in 2006 declaired the US governemnt the largest debtor in the world, will only be paying 1% interest on it's T-Bills for the forseeable future. This coupled with the fact that the money managers from 2000-2006, the fat years. Saw the global pool of investment dollars under their tutalage double from some 35 Trillion Dollars to 70 Trillion dollars. The combination of these two events more money to invest, and the biggest borrower saying they were going to dramatically cut the interest they were going ot pay... caused the large money managers to seek newer and ultimately riskier investment vehicles. They were flush with cash, and were actively looking for places to put it to use. They weren't thinking they were being greedy, they were simple looking to maintain the mighty MO. Momentum. Keep the rate of return they already had been enjoying. So the investment boys target morgages, only the morgage market is saturated. So they decide to broaden that market with new types of loans catering to an underseved segment of the market. Folks who can't afford loans... They do this thinking they can manage the huge risks by (1) charging more interest... (2) relying on the market increases in home values. (3) laying off some of the risks via derivatives to underwriters like AIG..... They are very happy and excited about this new investment vehicle... The only problem is they aren't retail banks. They are the guys who invest billions/Trillions not thousands or millions. They require the federal governemtn to ease morgage regulations to allow the federally regulated home morgage industry to sell the loans they are interested in buying...

So the money boys lobby congress; and get bipartisan support for easing the restrictions.... The GOP fell into line because the banking industry wanted it, and deregulation is always a good thing. The Dems fell in line also because the banking industry wanted it, but also because it had the promise of putting more people into self owned homes.. Everybody fundimentally misunderstood the risks and exposure.

(1) Charging more interest doesn't help if folks stop paying their loans..
(2) The value of the realistate going up can't be counted on when you undermine the integrety of the home market. When one home is forclosed upon; every home in the neighborhood looses value.
(3) The folks selling the derivatives were over leveraged, and likewise didn't understand the risks and their exposure in the coming tidal wave of forclosures and losses.

[Tulane Skins Fan]

But at the heart of monetarist theory is that everything will be okay based on the supply of money. Sure monetarist theory doesn't address regulation- it doesn't have to. But I think you get my point :)

And the biggest failure that has gotten us into this mess have been as a direct result of deregulation, or no regulation at all. i.e. increased debt leveraging (as allowed by the SEC), and credit swaps, which are unregulated, period.

So while you can make the blanket statement that regulation has increased, it has nothing to do with the mess we're in, or the problem at hand. Quite the contrary, actually.

Funny that we realized this almost two years ago, but today the problem is national debt.

[JMS]

Funny that we realized this almost two years ago, but today the problem is national debt.


National Debt, or more accurately the growing debt as represented by the massive deficite is definitely a huge problem. But it's better than shrinking the economy.


Greenspan's mistake is found in his endorsement of Ayan Rand's libertarian philosophy. The government can do no right. The belief in a "separation between the economy and state". That's what stripped the safeguards out fo the system and allowed the financial system drive itself off the cliff, leaving taxpayers to pick up the pieces.

[Tulane Skins Fan]

National Debt, or more accurately the growing debt as represented by the massive deficite is definitely a huge problem. But it's better than shrinking the economy.


Greenspan's mistake is found in his endorsement of Ayan Rand's libertarian philosophy. The government can do no right. The belief in a "separation between the economy and state". That's what stripped the safeguards out fo the system and allowed the financial system drive itself off the cliff, leaving taxpayers to pick up the pieces.

I'm not saying the national debt is not a problem. However, the current mindset out there is that we are in a recession because we have been running deficits and piling up a huge national debt. We are in a recession because the financial sector took shortcuts to profit for about 15 years (well maybe 30 years) and finally ran out of "bubbles" to create to prop up an artificial economy.

[aREDSKIN]

I have not seen the frontline piece yet. And I'm going to. But your statement just leaves me cold. The suggestion that our government ( both parties) would just arbitrarily decide to impose anything on the best connected, most poltical savy, and heavily lobbied business nationally; to my mind shows a total and complete lack of understanding over how our government works, how our party system works....

What's more plausable... The Government decides it wants poor people who can't afford loans to get them, so they ( both parties Republican and Democrats jointly) create/subsidize the infrastructure to sell those loans to consumers? Your contention is the Government bipartisanly rammed this down the banking industries throats, and that industry didn't make a peep in the press about being force fed this "mandate"? Then to make your premise even less plausable the big money men jump in with both feet buying up those packaged loans bundled into massive bonds worth Trilliions..... ultimately leading to disaster.




Yes, that's exactly what happened and the reason why we're in the mess we are in at the moment. Your assertion that was bipartisian is less clear to me but all in all it was gov't that triggered this.

YOU MUST VIEW THE FRONTLINE PIECE TO UNDERSTAND THIS.

[Mad Mike]

Right, because it's just that simple.:rolleyes:

Yes, it is. :D

Because it's worth quoting again...


“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. - Alan Greenspan

This destroys the most basic tenant of libertarianism; that the free market always knows best.

[JMS]

As for the mistake being a bipartisan one. Look up the --- The Gramm–Leach–Bliley Act (GLB), also known as the Financial Services Modernization Act of 1999,
http://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act

Here is the vote graphic..... showing most of both parties supported deregulating the banking industry.
http://en.wikipedia.org/wiki/File:Gramm-Leach-Bliley_Vote_1999.png



http://upload.wikimedia.org/wikipedia/commons/thumb/2/25/Gramm-Leach-Bliley_Vote_1999.png/800px-Gramm-Leach-Bliley_Vote_1999.png


Your own source Frontline's "The Warning" also shows bipartisan support for Greenspans plan in shutting down reforming the financial services industry in 1997-1992. It makes the statement they (Greenspan and his supporters) actually dispanded the one government agency when that agency tried to regulate the financial services market... Finally your frontline story concludes with Greenspans testimony before congress saying he was wrong and his world view that markets were always right was flawed. It's the freaking entire theme of your story!!!
http://www.pbs.org/wgbh/pages/frontline/warning/



Yes, that's exactly what happened and the reason why we're in the mess we are in at the moment. Your assertion that was bipartisian is less clear to me but all in all it was gov't that triggered this.


No that's not how it happenned. That's not how the government works. Neither party is activist enough to decide anything arbitrarily. Both parties put their finger to the wind and decide issues based upon how much money is behind any given issue. Who has more money than the financial industry?

The financial industry is so powerful that after the financial meltdown with a new democratic senate and house, elected largely because the economy melted down oprotunistically before the 2008 election. they still effectively resisted significant reform....

That's powerful.





YOU MUST VIEW THE FRONTLINE PIECE TO UNDERSTAND THIS.

The Frontline piece "The Warning" supports my position than your position, not yours. It puts blame on Alan Greenspan and his Kabal of presidential advisors for a hands off philosophy on the finantial services market., The front line piece gives credit to another Economist Brooksly Born, for predictiong the collapse and confronting Greenspan and then treasury secretary Robert Ruban during the build up to the collapse only to get shut down by Congress after Greenspan and Ruban shut her down...

I don't disagree with the blame, except I would say it's superficial and incomplete. The Greenspan philosophy which most of the GOP and Milton Friedman all endorse might have justified the deregulation of financial services as well as unregulated derivative market; but it wasn't the cause of the crisis. The story "The Warning" focuses on the genisis of the problem, not the entire build up from genisis to collapse.

[JMS]

YOU MUST VIEW THE FRONTLINE PIECE TO UNDERSTAND THIS.

I watched both frontline pieces... The Warning... which completely agrees with me. and the Meltdown which also agrees with me...

I think both pieces were accurate, but neither did a comprehensive job on explaining the crisis. Both gave only pieces of the problem... The genisis of stopping the regulation or initiationg deregulation on the government side. The folks taking advantages of slopy banking loan requirements on the consumer side. Neither piece really goes into the commercial side which was driving the bad decisions....

I would recommend you listen to a story now...NPR's Giant Pool of Money which discribes the crisis from soup to nuts...
http://www.getrichslowly.org/blog/2008/05/12/the-giant-pool-of-money-anatomy-of-the-subprime-mortgage-mess/

Here is another link to the Peabody winning audio story..
http://www.pri.org/business/giant-pool-of-money.html



Seriously listen to the story. It makes the complex crisis and put it into an understandable context. Who was bankrolling the lunicy, why, why the infrastructure peopel selling the loans and packaging the bonds didn't care, how consumers also took advantage of the situation... Why Greenspan and the government financial people didn't stop it. Why both parties Dems and Republicans supported it.