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Oct. 23 (Bloomberg) -- 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.

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Yes, shunning regulation was flawed. A truly free market has problems: monopolies, external costs (e.g. pollution), and the current cascading effects of subprime lending. When we place taxes or other regulations on the economy, I think it better be because not doing so is worse (monopolies are sub-optimal for markets, pollution hurts everyone, and a stable economy helps its citizens), not simply because we think big buisness is an endless pot of gold to be taxed or because we don't like any risk in the market.

Just as American revolutionaries cried "No taxation without representation" I think we should be upset with national and global financial risks without representation. I don't much like that people who did not choose to take these risks have suffered because of it. Yet I still prefer to keep the government's hands off the economy where we can.

This reminds me of this quote:

The financial collapse of Fannie Mae and Freddie Mac is not a failure of the free market because lending institutions in a free market would not have taken on the high-risk loans. They were forced to by the heavy hand of government.

-Walter Williams, October 8, 2008

Contrast to this:

Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief.

-Alan Greenspan, October 23, 2008

In a state of shocked disbelief, or as in the case of Williams, in a state of unconscionable denial.

Ignoring empirical reality because it doesn’t conform to your ideologically-driven theory is becoming a huge pet peeve of mine.

asbestosman wrote:Just as American revolutionaries cried "No taxation without representation" I think we should be upset of national and global financial risks without representation. I don't much like that people who did not choose to take these risks have suffered because of it.

Well put.

It reminds me of something I read a while ago, where somebody from South America said she thought everybody in the world ought to be able to vote in U.S. presidential elections because the outcome effects everybody--not just Americans.

Notice that it was his free market ideology. Mine includes a minimum of proper regulation. The government's role in the market is to ensure the consumer knows exactly what they are buying (without revealing trade secrets) and to make sure the consumer and producer alone pay the true cost.

bcspace wrote:Notice that it was his free market ideology. Mine includes a minimum of proper regulation. The government's role in the market is to ensure the consumer knows exactly what they are buying (without revealing trade secrets) and to make sure the consumer and producer alone pay the true cost.

Applying this to the topic at hand, do you believe that when large, sophisticated corporations do business with each other, that the government needs to get involved and regulate their private transactions to make they don't do anything that will harm their own shareholders and society as a whole?

Take credit default swaps as an example. When two private, sophisticated companies want to enter into a default-swap contract , should they be allowed to do so without government interference? Or do you think that the companies can't be trusted to look after the best intetrests of their own shareholders and thus need to be regulated by the heavy-hand of government?

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.

Really?? What part did he think was right?

In a state of shocked disbelief, or as in the case of Williams, in a state of unconscionable denial.

Ignoring empirical reality because it doesn’t conform to your ideologically-driven theory is becoming a huge pet peeve of mine.

1. Greenspan is sucking up the the Washington insider class to whom he owes his job, reputation, and status, and that is the end of that. Greenspan knows better, and he knows he knows better.

2. A pet peeve of mine is the kind of gross economic illiteracy expressed by Analytics in this post. The sub-prime meltdown is 100% a failure of government; it's a classic failure of the kind only government could possibly concoct. From the initial Community Reinvestment Act, to the imposition of quotas for loans to poor people and minorities who were (and known to be from the outset) bad credit risks, to the Reno justice department's threatening of legal sanction if such quotas were not met, to Fannie and Freddie's buying up of the bad paper and then selling it to other financial institutions, the financial meltdown was a creation of the state meddling, distorting, and corrupting the incentives within the home loan financial markets, yet another market and another area in which the state has no business sticking its incompetent, grasping, porcine fingers.

We can name the names of those who have supported this doomed system until its implosion: Chistopher Dodd, Henry Waxman, Barney Frank, Jamie Gorelick, Franklin Rains, Bill Clinton, and the whole ugly vote buying scheme that is the CRA.

Great lesson here on the old axiom of letting people believe your a fool by keeping silent, or opening your mouth and leaving no doubt about the fact.

Droopy wrote:1. Greenspan is sucking up the the Washington insider class to whom he owes his job, reputation, and status, and that is the end of that. Greenspan knows better, and he knows he knows better.

2. A pet peeve of mine is the kind of gross economic illiteracy expressed by Analytics in this post. The sub-prime meltdown is 100% a failure of government; it's a classic failure of the kind only government could possibly concoct. From the initial Community Reinvestment Act, to the imposition of quotas for loans to poor people and minorities who were (and known to be from the outset) bad credit risks, to the Reno justice department's threatening of legal sanction if such quotas were not met...

“Gross economic illiteracy” for agreeing with Alan Greenspan’s candid and self-incriminating analysis of the problem?

Here is the heart of Greenspan's opinion:

The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of crisis) would have been far smaller and defaults accordingly far fewer.

You really disagree with him about what he claims the evidence strongly suggests?

The vast majority of the bad mortgages weren’t written in order to comply with the CRA, and weren’t even written by lenders who were subject to the CRA. Most of the bad securitization deals were created by private investment banks—not Freddie Mac or Fannie Mae. The whole thing was fuled by the free-market demand by private investors, who were fooled by the stamp of approval granted the totally unregulated rating “agencies”.

You have a lovely narrative that pins the blame on the political figures you despise, so I’m certain you’ll cling to it with religious zeal. But the evidence proves it is wrong. If you look at the actual loans, securitizations, instruments and transactions that caused this, you’ll see that the decisions that lead to the meltdown had very little to do with the government.

Analytics wrote:

Droopy wrote: I’m certain you’ll cling to it with religious zeal. But the evidence proves it is wrong. If you look at the actual loans, securitizations, instruments and transactions that caused this, you’ll see that the decisions that lead to the meltdown had very little to do with the government.

Evidence? LOL
This is what Droopy is good at: He can rationalize and find "reason" to believe in the most bizzare stuff. Look, this is a guy who believes in Kolob and believes in crystal balls (seer stones) and a mammal diety. He believes that not only was the Garden of Eden real, but that it was located in Missouri. He believes that sex was not on the mind of a 20 something year old man who secretly married other mens wives and lied about it.

You ask him to look at the evidence! LOL! How could evidence (of all things) influence a mind like this? He is bent viewing facts through infinitely distorting ideological and supernaturalistic lenses. (What a combination!)

He lacks common sense and has a fantasmagorical and conspiracy theoretic world view. He makes Sen. McCarthy seem extremely reasonable and makes John Birchers look like rastafarians.