Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Alan Greenspan's 'shocked disbelief' [yester]day in Congress

by Magnifico Fri Oct 24th, 2008 at 07:16:17 AM EST

In the big U.S. newspapers thisyesterday afternoon are reports of former Federal Reserve Chairman Alan Greenspan's appearance before the U.S. House Oversight and Government Reform Committee today.

The Washington Post reports Greenspan described the financial crisis a "once-in-a-century credit tsunami" and the Los Angeles Times adds Greenspan warns unemployment will rise.

"This crisis ... has turned out to be much broader than anything I could have imagined ... Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment."

According to The New York Times, Greenspan said he "made a mistake" in believing free markets could regulate themselves without government oversight.

On a similar note, the LA Times adds Greenspan "admitted that the crisis showed flaws in his strong free-market ideology", but I don't interpret him saying that at all.

promoted with time edits by afew

Greenspan said in prepared remarks:

"As I wrote last March, those of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief... Such counter-party surveillance is a central pillar of our financial markets' state of balance. If it fails, as occurred this year, market stability is undermined."

The Washington Post adds:

"It was the failure to properly price such risky assets that precipitated the crisis," Greenspan said, by encouraging investors worldwide to look at U.S. subprime loans as a "steal" rather than an uncertain bet that relied on escalating home values. "The whole intellectual edifice . . . collapsed in the summer of last year."

As noted elsewhere the bubble burst last summer, but instead of calling attention to the problem Greenspan and his ilk created, they helped their friends, associates, and clients to get out of harm's way before the "whole intellectual edifice collapsed". The Dow closed at a record high in October 9, 2007.

The NY Times describes the exchanges between Greenspan and Rep. Henry Waxman.
Waxman, the committee's chairman, as "tense". Under questioning from Waxman, Greenspan said:

"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms," Mr. Greenspan said.

Referring to his free-market ideology, Mr. Greenspan added: "I have found a flaw. I don't know how significant or permanent it is. But I have been very distressed by that fact."

Mr. Waxman pressed the former Fed chair to clarify his words. "In other words, you found that your view of the world, your ideology, was not right, it was not working," Mr. Waxman said.

"Absolutely, precisely," Mr. Greenspan replied. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

This is the true legacy of Greenspan. A man who took a financial system that had worked more or less for more than 40 years and then pushed for deregulation and no oversight and then had it collapse in the worst financial crisis since the start of the Great Depression. The LA Times reports on Waxman remarks as he opened today's hearing:

"For too long, the prevailing attitude in Washington has been that the market always knows best. The Federal Reserve had the authority to stop the irresponsible lending practices that fueled the subprime mortgage market. But its longtime chairman, Alan Greenspan, rejected pleas that he intervene."

To this day, Greenspan does not understand what caused the financial collapse, not can he admit his role in the downfall. Waxman flat out asked Greenspan if he made a mistake.

"My question for you is simple: Were you wrong?" Waxman said.

Greenspan said his mistake was in presuming that it was in the self-interest of banks and other financial institutions to best protect their shareholders.

"The problem here is something that looked to be a very solid edifice ... did break down. And I think that, as I said, shocked me. I still do not fully understand why it happened." Greenspan said.

The collapse happened, in part, because of Greenspan's libertarian, free market ideology and his irrational belief markets would regulate themselves.

But when asked by Waxman if he had "any personal responsibility for the financial crisis," Greenspan dodged a direct answer. He admitted a flaw in his free-market ideology, but said he made decisions as chairman based on federal laws, "not my own views."

Greenspan still cannot come to terms with the disaster he created. He advocated deregulation. His decisions were almost solely based on his ideology that called for no governmental role in overseeing markets. He actively lobbied to prevent laws to regulate derivatives and the financial markets. Greenspan's ideology helped create the collapse and he still cannot or refuses to see the outcome of putting his views into action.

Cross-posted from Docudharma.

My earlier essay, LQD: Alan Greenspan - Legacy of Mr. Bubbles, has some background on his ideology.
by Magnifico on Thu Oct 23rd, 2008 at 02:26:52 PM EST
by das monde on Thu Oct 23rd, 2008 at 08:56:44 PM EST
Well, I certainly approve of the new Atlas on display. :-)

It is ironic that the Christian Right, through their political activity, has, through her disciple, Alan Greenspan, potentiated Ayn Rands philosophy of "Objectivism," with its belief that greed is good and altruism is folly.  Can anyone suggest a better or more effective candidate for a 20th century Anti-Christ?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 24th, 2008 at 01:00:50 PM EST
[ Parent ]
Mr. Waxman pressed the former Fed chair to clarify his words. "In other words, you found that your view of the world, your ideology, was not right, it was not working," Mr. Waxman said.

"Absolutely, precisely," Mr. Greenspan replied. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

It is very, very, very rare to hear an ideologue admit his ideology was wrong.  

This financial tsunami should destroy the economic libertarians but won't.  The curtain has been pulled back to show the invisible hand is not a God.  Regardless, the ideology will always appeal to a certain personality type...such as Grover Norquist.  

by Jagger on Fri Oct 24th, 2008 at 01:15:31 AM EST
such as Grover Norquist.

Just out of interest, has he had anything to say about the current situation?

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Fri Oct 24th, 2008 at 03:36:24 AM EST
[ Parent ]
Now, were Congress to press a thorough investigation into the last 20 years of activity by Mr. Norquist, they might find many actionable items, many of them still well within the statutes of limitations.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 24th, 2008 at 01:12:30 PM EST
[ Parent ]
I agree: This response, if anything, substantially increases my respect for Mr. Greenspan. It is seldom that people so thoroughly indoctrinated with a world view, at his age, are willing to admit basic flaws in matters so important to who they are. I'm not expecting him to join the Socialist Workers Party anytime soon, but this is Damascene in its own limited way. Especially since intellectual honesty has been so incredibly rare and cognitive dissonance so incredibly common at the top echelons of US government, this should be celebrated as a magnificent step towards leaving behind the era of Deregulation as Ideology.

... And should be used to beat the more stubborn over the head with, at every opportunity one might add. The libertarians might not be destroyed (I mean there are still flat-earthers around, no?), but expect far fewer of them and in less prominent positions (or so I would hope).

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Fri Oct 24th, 2008 at 08:24:14 AM EST
[ Parent ]
That's nice and all, but when the collateral damage is the entire planetary economy, I'm not left feeling reassured.

And I don't think it's going to make a difference, because the entire planetary economy has mostly been run by people who think - or thought - as Greenspan does.

MBA courses will not suddenly change their course materials because Greenspan - supposedly - had an epiphany. And nothing less than a clearing out of the freaks from professional and academic economics will do the job.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Oct 24th, 2008 at 10:40:19 AM EST
[ Parent ]
I have no respect for him, he should be arrested!
Simple as that!

Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Fri Oct 24th, 2008 at 10:42:49 AM EST
[ Parent ]

The man should have a Nobel prize for bringing forward the collapse of the system by at least ten years....

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

by ChrisCook (cojockathotmaildotcom) on Fri Oct 24th, 2008 at 12:47:24 PM EST
[ Parent ]
If that's so, then this "Comment is free" essay at The Guardian by The Spoon may be of interest — Alan Greenspan: a martyr for the cause.

People say the former Federal Reserve chair is just trying to save his own skin - I think he's trying to save ours.

by Magnifico on Fri Oct 24th, 2008 at 02:06:04 PM EST
[ Parent ]
Or rather, a few trillion dollars short.

If he'd been a bit less mealy-mouthed and wasn't quite as far into retirement, I might give him some credit. As it is, though, I find his queueing up for the sink to wash his hands as unappealing as the pious remarks on peace that we seemingly routinely get from conveniently retired Israeli politicians and generals.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Oct 24th, 2008 at 12:00:16 PM EST
[ Parent ]
Is there any reason the entire assembly shouldn't have burst out laughing at Greenspan?  Or that the chair shouldn't have whopped that crooked old raisin in the head with a tire iron?
by rifek on Fri Oct 24th, 2008 at 01:15:47 PM EST
Not so much with the tire iron.

But putting up some stocks - of the wooden sort - on Wall St might make a memorable political and economic point.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Oct 24th, 2008 at 01:39:19 PM EST
[ Parent ]
i think they were stunned and embarrassed that their political system had allowed such a clueless old fart to be at the helm of the world economy. talk about 'reality check'!!

but i think they're all playing dumb, it's kabuki, even waxman would have done something if he was up to it by now, more stern sounding q&a's, while the looters pile up even more riches, and the public gradually figures out the obvious.

if they had been even semi-serious and not in cahoots, they would have stripped his bank accounts of all the millions he made while the party was peaking.

if nothing else, as a lesson in personal and social accountability, and as object lesson for others using the same kind of greasy doubletalk to cover for crooks.

he'll need the protection of his compound in a year or so when the full effect hits the real economy, and the general public wants to take their anger out on someone, and is no longer fooled by the 'wise old guru' schtick patter.

already the rhinos are coming out with the books and spin how the great depression was created by raising taxes, and how the New Deal was a huge mistake.

they should read Studs Terkel, and then think again...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Oct 24th, 2008 at 03:46:12 PM EST
[ Parent ]

Go to: [ European Tribune Homepage : Top of page : Top of comments ]