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Market crisis 'will happen again'

"The crisis will happen again but it will be different," he told BBC Two's The Love of Money series.

He added that he had predicted the crash would come as a reaction to a long period of prosperity.

But while it may take time and be a difficult process, the global economy would eventually "get through it", Mr Greenspan added.

"They [financial crises] are all different, but they have one fundamental source," he said.

"That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that it will continue."

(...)

Mr Greenspan, who when he ran the US central bank was hailed as a man who could move markets, also warned that the world's financial institutions should have seen the looming crisis.

"The bankers knew that they were involved in an under-pricing of risk and that at some point a correction would be made," he said.

(...)

In order to prevent the situation arising again financiers and governments should look to clamp down on fraud and increase capital requirements for banks, the former central banker said.

(...)

"The most recent endeavour to re-regulate is a reaction to the crisis. The extraordinary impact of these global markets is making a lot of financial people feeling they have lost control.

"The problem is you cannot have free global trade with highly restrictive, regulated domestic markets."

So:

  • The crisis was predictable (and, now he tells us, predicted by him!) and could have been avoided;
  • but it was unavoidable, because it's caused by the fundamentals of human nature;
  • bankers knew (like him) that they were behaving foolishly and they should now be regulated
  • but despite this, regulation is bad, because it prevents the nice booms we so love;
  • busts don't count when evaluating deregulation, only the boom part.

Why is this man taken seriously, again, and not as the religious nutcase he is?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Sep 9th, 2009 at 10:40:57 AM EST
Why is this man taken seriously, again, and not as the religious nutcase he is?

Because he is the high priest of the Cult of Capitalism, which, since it has come to dominate the culture and society, is not even seen as a religion, but rather is seen as reality. The advantages of incumbency!

Simon Johnson is dead on about the need to bring the financial system to heel.  Unfortunately, the prospects seem dim at best.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 9th, 2009 at 11:39:30 AM EST
[ Parent ]
Because he's fucking the Queen Bee of the Washington press corps?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Sep 9th, 2009 at 05:51:58 PM EST
[ Parent ]
Jerome a Paris:
"They [financial crises] are all different, but they have one fundamental source," he said.

Nope. Two.

The deficit basis of money created as debt.

Profit maximisation.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Sep 9th, 2009 at 06:28:31 PM EST
[ Parent ]
part.

Why? Simple. Because that system does not necessarily lead to an ever-escalating debt cycle. The reason for this is in law.

Consider: The central bank decides to emit 500.000 units of currency. Let's assume, for simplicity of example, that it gives money to the state in exchange for a bond with which the state is obligated to return 550.000 in ten years' time.

However, after 10 years the central bank decides not to demand that the debt be paid, since there is no reason to tighten the money supply. After a certain time from the day the debt comes due, depending upon the legal system, the creditor cannot demand that the debtor pay. That "debt" will be purely nominal, since, if the central bank were to demand that the state pay, the state could claim the obligation has expired.

The rest I agree with. Bretton-Woods is proof that the world can agree on lower economic growth due to the curbing of the worst parts of human nature in exchange for stability.

Iuris praecepta sunt haec: Honeste vivere, alterum non laedere, suum cuique tribuere. - Ulpian, Digestae

by Titus on Thu Sep 10th, 2009 at 09:31:01 AM EST
[ Parent ]
As a historical aside, Bretton Woods coincided with some of the highest growth rates of aggregate industrial production in human history.

Floating currencies aren't all that they're jacked up to be, unless you're a hot money speculator.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Sep 13th, 2009 at 06:42:29 PM EST
[ Parent ]
I'm sure Sachs and Bono will find a solution to this problem.
by redstar on Wed Sep 9th, 2009 at 06:50:36 PM EST
[ Parent ]
Al Gore is fat.  I'm jess sayin'....

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Wed Sep 9th, 2009 at 07:41:00 PM EST
[ Parent ]

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