Greenspan 'Shocked' That His Free Market Wisdom Was 'Flawed'

Not quite an apology, not exactly a mea culpa, but Alan Greenspan managed to confess that he was sorta kinda wrong while claiming to have done the best he could. Criminal defendants who make such a half-hearted attempt to accept responsibility during sentencing hearings usually wind up serving a long stretch in prison.

Former Federal Reserve Chairman Alan Greenspan said a "once-in-a-century credit tsunami" has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed.

"Yes, I found a flaw," Greenspan said in response to a 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." Greenspan said he was "partially" wrong in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected.

[more ...]

Here's what Greenspan "expected":

In May 2005 speech, Greenspan said that "private regulation generally has proved far better at constraining excessive risk-taking than has government regulation."

Of course, "private regulation" isn't regulation at all. And we've seen how well the absence of regulation constrains "excessive risk-taking." Alan Greenspan might be shocked by the revelation that greed isn't always self-regulating, but it's not as if the idea hadn't been suggested to him in the past.

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."

More Waxman:

"Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite," he added, saying that the mantra became "government regulation is wrong".

That mantra is long overdue for retirement. It should have retired with Greenspan.

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    It wouldn't even have been once in a (5.00 / 3) (#1)
    by ThatOneVoter on Thu Oct 23, 2008 at 12:35:53 PM EST
    century without Greenspan's able guidance.
    Don't believe a word he says. He has been spending the last 25 years trying to help the rich soak the poor. His attempted $2 trillion heist of SS funds (by collecting the taxes and then refusing to pay out)  would have been far worse than the relatively minor losses suffered in the mortgage meltdown.
    He's just a crook, like all traditional Republicans.

    thatonevoter (none / 0) (#4)
    by cal1942 on Thu Oct 23, 2008 at 01:43:09 PM EST
    you have spoken the truth of the last century of our history.

    Regulate, Baby Regulate! (5.00 / 4) (#2)
    by Xclusionary Rule 4ever on Thu Oct 23, 2008 at 12:48:10 PM EST
    After we stabilize US capital markets and pass laws forever separating investment banking from commercial and consumer banking, and after we tax stock transactions to pay for bailouts, and after we increase the capital gains tax, and the estate tax, and institute cap and trade as a means of beginning to tax pollution, we can start addressing the damages caused in Argentina, Chile, Bolivia, Iraq, Russia, and countless other countries in Central America and Africa where we have let the IMF and WB and Greenspan and Friedman brutally export their Neo-Liberal economic fascism.  

    This is our time, this is our moment.  Now that we're going to have a moderate in the white house, we need to hold him to his promise of rolling back the "failed economic philosophy" he talks about so much.  Kudos to Greenspan for at least feigning honesty. Own your failure, guys.   Wreagan was wrong.

    With apologies to Captain Renault (5.00 / 1) (#6)
    by ding7777 on Thu Oct 23, 2008 at 02:01:30 PM EST
    of Casablanca... "I'm shocked, shocked, to find that 'private regulation' has a flaw"

    Once in a century!? (5.00 / 2) (#8)
    by Demi Moaned on Thu Oct 23, 2008 at 02:14:05 PM EST
    Bah! Humbug!

    This is a paradigmatic example of why Nassim Nicholas Taleb, author of The Black Swan and Fooled by Randomness is so scornful of economists (and the so-called Nobel Prize in Economics, BTW).

    By 'quantifying' the frequency of this occurrence he's still pretending to understand something that he fundamentally does not understand.

    Furthermore (5.00 / 1) (#9)
    by cal1942 on Thu Oct 23, 2008 at 02:15:14 PM EST
    In May 2005 speech, Greenspan said that "private regulation generally has proved far better at constraining excessive risk-taking than has government regulation."

    "Adults" like Greenspan, who are adults in the way your drooling, nutty, institutionalized uncle is an adult, have lived in a different world.  

    The planet Pollyanna.

    Congressman Sarbanes of MD (none / 0) (#3)
    by inclusiveheart on Thu Oct 23, 2008 at 01:31:48 PM EST
    did a very good job basically telling the entire panel that their claims that they did not know or could not see what was coming sounded like a "pass the buck" excuse.  When Greenspan claimed that he was only aware of a small fraction of the problematic subprime mortgages, Sarbanes rightly pointed out that by not addressing the problems Greenspan claims he was aware of he helped grow the situation into a huge problem.  It was a stinging rebuke of Greenspan's performance.

    Elijah Cummings was literally on fire almost yelling at the panel saying "We paid your salary!" after Cox tried to place the blame for something onto his predecessor.  Cummings kept saying, "But what did YOU do?  We paid you for three years to do a job!  What did YOU do about it?"

    I was refreshing to finally see Greenspan and the rest of those jokers treated as the mere mortals they always have been.  It was always incredibly disturbing to see Greenspan appear in front of Congress and watch congresscritters fawn all over him like he was some sort of god.

    And a few of us (5.00 / 3) (#5)
    by cal1942 on Thu Oct 23, 2008 at 01:55:15 PM EST
    couldn't believe the accolades received by a man whose ignorant free market 'ideas' was more akin to belief in space aliens and flying saucers.

    Alan Greenspan is and was a crackpot at the head of a gang of crackpots that controlled our destiny for nearly three decades.


    He pulled "a neat trick" for (5.00 / 2) (#7)
    by inclusiveheart on Thu Oct 23, 2008 at 02:10:39 PM EST
    30 years - modeled on the Wizard of Oz - he'd go to Congress, make nonsensical statements and everyone would think the reason that they didn't actually understand what he was saying was because he was such a genius when in fact he was just spouting unintelligible nonsense.

    inclusiveheart (none / 0) (#23)
    by cal1942 on Thu Oct 23, 2008 at 11:21:41 PM EST
    you've absolutely nailed it.

    Actually belief in space aliens, or even (5.00 / 1) (#12)
    by ThatOneVoter on Thu Oct 23, 2008 at 02:25:05 PM EST
    belief in God, are both more rational than Greenspan's beliefs: neither belief is strongly contradicted by facts, while his belief in the efficacy of free markets is known for a fact to be wrong in many cases.

    Greenspan (none / 0) (#10)
    by kmblue on Thu Oct 23, 2008 at 02:15:35 PM EST
    and Andrea should worry.  Not.

    When she (none / 0) (#13)
    by cal1942 on Thu Oct 23, 2008 at 02:30:47 PM EST
    married Greenspan NBC should have reassigned her to something more useful than her "reporting"; like collecting for the coffee fund.

    It's amazing (none / 0) (#11)
    by Manuel on Thu Oct 23, 2008 at 02:20:20 PM EST
    how many once in a century incidents have befallen our economy in the last ten years.

    We should, however, resist the temptation to overreach as we start to fix the economy.  We need new creative approaches to regulation not just more regulation for regulation's sake.  After all, regulation does have a real cost to the economy.

    We should also be flexible and creative with regards to taxes.  I don't think it is a given that all taxes should be raised.  For example, eliminating the corporate tax as Robert Reich suggests may be a good idea.

    Jeez (3.00 / 2) (#14)
    by cal1942 on Thu Oct 23, 2008 at 02:38:47 PM EST
    Manuel what you're suggesting is something like quickening the pace and severity of after shocks following a catastrophic earthquake.  The kind that causes as much damage as the original episode.

    I like this litle gem.

    After all, regulation does have a real cost to the economy.

    Yes, the kind of "damage" to an economy that's borne of enforcing honesty and integrity.

    Please grow up.


    Hey regulation is neither fish nor fowl (none / 0) (#19)
    by Manuel on Thu Oct 23, 2008 at 04:00:08 PM EST
    It evolved as an alternative to socialism.  It is rife with the danger of corruption or "capture" of the regulators.  Please don't replace a blind faith in the free market with a blind faith on the power of regulation.

    In some cases (e.g. the banks) perhaps we should look for a more socialist solution (i.e. nationalization).

    It isn't clear I am the one who should grow up.


    The smoking gun (none / 0) (#15)
    by NYShooter on Thu Oct 23, 2008 at 02:40:37 PM EST
    In Greenspan's resume came when "W" seized power, and decided to keep Greenspan on the job. What was the "Devil's pact" the two of them made? Junior said to "The Oracle," "You can keep your job, but you must surrender your intellect and replace it with my ideology."

    When Greenspan accepted, and endorsed, The Boy King's massive tax cut policies, everyone in my circle (The Stanford Boys) knew "the fix was in."

    Having (rightfully) lectured against it during the campaign, and then embraced it to keep his job, is, in my opinion, the stain on his legacy that will never wash away.  

    My father in law (none / 0) (#16)
    by blogtopus on Thu Oct 23, 2008 at 02:42:46 PM EST
    is a great financial planner and a natural genius with just about everything he touches... but he thinks Greenspan could do no wrong.

    Nobody's perfect, I guess. :-P

    Apologies to Gil Scott Heron (none / 0) (#17)
    by Pedalman on Thu Oct 23, 2008 at 02:54:05 PM EST
    "America leads the world in shocks.
    Unfortunately, America does not lead the world in deciphering the cause of shock."
    Pardon our analysis.

    dr. greenspan is a (none / 0) (#18)
    by cpinva on Thu Oct 23, 2008 at 03:12:04 PM EST
    flat out liar. the recent recipient of the nobel prize for economics, dr. paul krugman, himself warned dr. greenspan of the very dangerous probability of exactly what has come to pass: the collapse of the sub-prime mortgage market, and the ensuing collapse of all the derivative markets based on it.

    dr. krugman did this publicly, in columns published in the new york times, while dr. greenspan was still the federal reserve board chairman. dr. greenspan essentially blew dr. krugman's warnings of impending financial disaster off.

    i believe the fox guarding the henhouse would, using dr. greenspan's definition, qualify as self-regulation. we see how that worked out.

    i hope, should sen. obama be our next president, that he gives serious consideration to asking dr. krugman to join his economic advisory team. that would be the sign of one who recognizes his own limitations, and takes concrete steps to fill in the gaps.

    This would be great (none / 0) (#21)
    by joanneleon on Thu Oct 23, 2008 at 09:09:07 PM EST
    but I highly doubt it, since Krugman dared to criticize Obama and his health plan during the primary.

    There was a period of time when the blogosphere was ripping Krugman to shreds on a regular basis because of this, even though Krugman had always been a hero of the netroots.

    Now he's in the good graces again, I think.

    But I tend to think the Obama campaign will hold grudges, to their own disadvantage.


    then sen. obama (none / 0) (#22)
    by cpinva on Thu Oct 23, 2008 at 10:12:48 PM EST
    would prove himself a complete idiot.

    But I tend to think the Obama campaign will hold grudges, to their own disadvantage.

    my "support" for sen. obama just barely rises to the level of tepid as it is, i certainly don't credit him with being the best qualified person for the job, that would be sen. clinton. what he has going for him, with me, is that he isn't mccain.

    the "lesser of two evils" approach to voting.


    Brooksley Born (none / 0) (#20)
    by caseyOR on Thu Oct 23, 2008 at 06:44:01 PM EST
    She saw it coming, and was driven out of gov't by Greenspan and Rubin. Greenspan's a liar.