Greenspan admits ideology was flawed

[mr friendly guy]

linky

Greenspan admits ideology was flawed

* October 24, 2008 - 6:47AM


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 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.

''We cannot expect perfection in any area where forecasting is required,'' he said. ''We have to do our best but not expect infallibility or omniscience.''

Part of the problem was that the Fed's ability to forecast the economy's trajectory is an inexact science, he said.

''If we are right 60% of the time in forecasting, we are doing exceptionally well; that means we are wrong 40% of the time,'' Greenspan said. ''Forecasting never gets to the point where it is 100% accurate.''

Self-Policing

The admission that free markets have their faults was a shift for the former Fed chairman who declared in a May 2005 speech that ''private regulation generally has proved far better at constraining excessive risk-taking than has government regulation.''

Today 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.''

Waxman and other lawmakers repeatedly interrupted Greenspan as he answered their questions, in contrast to deference to his testimony while he was Fed chairman.

Firms that bundle loans into securities for sale should be required to keep part of those securities, Greenspan said in prepared testimony. Other rules should address fraud and settlement of trades, he said.

Resistant to Regulation

Greenspan opposed increasing financial supervision as Fed chairman from August 1987 to January 2006. Policy makers are now struggling to contain a financial crisis marked by record foreclosures, falling asset prices and almost $US660 billion in writedowns and losses tied to US subprime mortgages.

Today, the former Fed chairman asked: ''What went wrong with global economic policies that had worked so effectively for nearly four decades?''

Greenspan reiterated his ''shocked disbelief'' that financial companies failed to execute sufficient ''surveillance'' on their trading counterparties to prevent surging losses. The ''breakdown'' was clearest in the market where securities firms packaged home mortgages into debt sold on to other investors, he said.

''As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue,'' Greenspan said. That would give the companies an incentive to ensure the assets are properly priced for their risk, advocates say.

Subprime Lending

Greenspan said the Fed didn't know the size of the subprime mortgage market until late 2005.

Securities and Exchange Commission Chairman Christopher Cox and former Treasury Secretary John Snow also appeared at the House committee hearing.

Snow said the economy is headed down a ''bad, bad path'' and he endorsed consideration of more fiscal stimulus. For the longer term, Snow said the global financial system should be reorganized by focusing on increasing transparency of ''excessive'' leverage to prevent institutions from creating too much risk.

The US needs ''one strong national regulator'' to oversee firms and fix what Snow called ''a fragmented approach'' to regulation. ''Steps to restore transparency and responsibility in the marketplace will go a long way towards restoring stability and confidence,'' he said.

Addressing the trio that oversaw the US financial markets as the housing bubble developed, Representative John Yarmuth, a Democrat from Kentucky, characterized them as ''three Bill Buckners,'' referring to the Boston Red Sox first baseman whose fielding error some fans blame for the team's loss in the 1986 World Series.

Bloomberg

[PeZook]

So he finally got what completely untrained people like Mike managed to foresee years ago?

[aerius]

Shut your fucking piehole Greenspan, you're one of the assholes responsible for the fucking mess. Where the fuck were you when things started coming apart last year? Oh, that's right, saying that everything was good and the markets needed more freedom. Now that everything's come apart and we're on the edge of a complete meltdown, you finally come out and say you're mistaken, then go on and whine about how it was completely unforeseeable and thus not your fault. Just shut up and die already.

[TithonusSyndrome]

Saying that he found a "flaw" makes it sound like he caught some minor oversight that could've been addressed while still maintaining the same overall bullshit deregulatory circlejerk. I guess this is as close as a Friedmanist ideologue like Greenspan will ever come to admitting that his entire life's passion is a contemptible, fraudulent joke of a model.

[K. A. Pital]

''If we are right 60% of the time in forecasting, we are doing exceptionally well; that means we are wrong 40% of the time,''

60-40? So he essentially admits that his economic policy knowledge is only 10% away from a coinflip. What a fitting demise, Greenspin. If that's "exceptionally well" predicted economic situation, he'd better consult the synoptics. At least they have better accuracy than a coinflip, and utilize exact science called physics for prediction.

[Darth Wong]

It's like the 2006 American flip-flop on Iraq all over again: "OK, we were wrong, but nobody could have predicted this." It's a giant lie, since countless people did predict it.

[cosmicalstorm]

Greenspan admits ideology was flawed... Barn-door closes on horses ass

[Fingolfin_Noldor]

I was laughing when I read it. Obviously he knew he had no choice but to admit it in the face of unequivocal evidence of his failure, just less than 5 years since he transferred power.

So much for libertarian ideology. Let them stew in their bloody mistakes.

[Big Orange]

People like Greenspan could've turned things around ten or more years ago, hell wasn't there a mini-recession way back in 1987? Why is it only now that the Neoliberals are whinging like bitches when their economic system is rattling apart around their ears? The Friedman economic model is the crap it always was and the mayhem it caused in Latin America was a forshadowing to what is happening in America and Britain now.

[Dark Hellion]

One of the big things is they aren't going to stew. A huge amount of their policy has been about avoiding having to take the consequences for when their policies fail by pawning it off on tax payers or into the national debt. There is a good reason it took so long for them to notice their system didn't work because they never had to experience it not working.

It's like not telling your child it's dangerous not to look both ways before crossing the street. If you live on a quiet drive they could cross the street a million times and not get hit, and this reinforces their idea that they are crossing the street correctly. Then they go to LA and get hit by the first car. Not being exposed to the consequences ever made them think there where none.

[Darth Wong]

People like Greenspan could've turned things around ten or more years ago, hell wasn't there a mini-recession way back in 1987? Why is it only now that the Neoliberals are whinging like bitches when their economic system is rattling apart around their ears? The Friedman economic model is the crap it always was and the mayhem it caused in Latin America was a forshadowing to what is happening in America and Britain now.

The worst thing is that the Americans basically had control of the IMF, and used it to force third-world countries to adopt American-style financial systems before granting them aid. They've exported their ideology to the rest of the world, sometimes by rhetorical chicanery and sometimes by coercion.

[TithonusSyndrome]

So much for libertarian ideology. Let them stew in their bloody mistakes.

They won't recognize them as their mistakes, not in a million years. The blogosphere and Youtube and every other libertardian repository on the internet is awash with frothing Paultards and unaffiliated lolbertarians fanatically convinced that the market failure is the result of government interference and that it wouldn't have happened if there was less of it. This is no different than the conservitards who call Obama "America's most socialist politician" in abject ignorance of better fits like Huey Long; because the political sphere of the USA is tilted so far in their favor that any effort to move just a tad in the direction opposite their own is "extremism."

[Ekiqa]

Saying that he found a "flaw" makes it sound like he caught some minor oversight that could've been addressed while still maintaining the same overall bullshit deregulatory circlejerk. I guess this is as close as a Friedmanist ideologue like Greenspan will ever come to admitting that his entire life's passion is a contemptible, fraudulent joke of a model.

Every economic theory looks good as a model, but fails once tried in reality. But they call it a science degree, and the banks funding the Nobel Prize forced them to give Friedman a Nobel. It should be revoked.

[Big Orange]

The worst thing is that the Americans basically had control of the IMF, and used it to force third-world countries to adopt American-style financial systems before granting them aid. They've exported their ideology to the rest of the world, sometimes by rhetorical chicanery and sometimes by coercion.

They used coercion in Chili through the infamous General Pinochet, and while the Maxists probably wouldn't been any better, the Chilian economy threatened to completely bottom out under Neoliberal policies that were taken out for a test drive. Neoliberals seems to have a similar mindset to Marxists in that they're more ideological than pragmatic and they make flimsy excuses that Neoliberalism was never given a chance, when it had nearly 30 years or so to prove itself and it only ever makes short term gain for a few, while causing long term pain for many.

In Britain, where I live, we currently having had such madness like Cadbury-Schweppes shutting down a premier chocolate factory and shifting operations to Eastern Europe in order to flog land onto a horribly bloated property market that crashed 'n burned in a spectacular manner, while also not thinking about the flood of cheap imported labour (from Eastern Europe oddly enough) and the fuel prices going up (needed to ship in the goods made overseas). The justification for most foreign labor seems to be motivated by wages being driven down into the ground or/and cost cutting to the point of defeating efficient management (but the cynical exploitation of India and China is seriously threatening to backfire on the West).

[SirNitram]

How is it, precisely, that these bozos are so 'shocked' to find gambling going on, when they made the casino?

Another experiment in Ayn Rand's philosophy proves the stupidity of 'Objectivism', what a pity it's taking most of the world's economy with it.

[Illuminatus Primus]

They sound just like communist ideologues with their endless excuses for why if only people would do it just right, their utopia would function.

[Norseman]

How is it, precisely, that these bozos are so 'shocked' to find gambling going on, when they made the casino?

Another experiment in Ayn Rand's philosophy proves the stupidity of 'Objectivism', what a pity it's taking most of the world's economy with it.

Ayn Rand was not a philosopher and the link is very good for skewering her sort of thinking.

[Patrick Degan]

How is it, precisely, that these bozos are so 'shocked' to find gambling going on, when they made the casino?

Another experiment in Ayn Rand's philosophy proves the stupidity of 'Objectivism', what a pity it's taking most of the world's economy with it.

Ayn Rand was not a philosopher and the link is very good for skewering her sort of thinking.

Oh, yes, she was a philosopher. It's just that, like nearly every philosopher, Rand was full of bullshit.