THIS IS HUGE but it is the kind of detailed financial news that usually doesn't hit the mainstream. Alan Greenspan, who sat for years telling Congressmen who were too scared of looking stupid by admitting they didn't have a clue as to what he was saying, the leader of the deregulation of financial firms has now come full circle. He says today, that he is shocked that the CEOs and managers of financial firms were, in essence, greedy and dishonorable. Think about that for a minute. The entire financial mess we are in now is because Greenspan was wrong in his assumption that the honor system would work. It is really that simple, just dressed in a lot of financial technical jargon. So now, he is recommending more regulations. Well thanks Alan, so good of you to help us now, as we try to put the shit back in the donkey.
Oct. 23 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan called for tighter regulation of financial companies, distancing himself from the free-market culture that he helped to create.
Firms that bundle loans into securities for sale should be required to keep part of those securities, Greenspan said in prepared testimony to the House Committee on Oversight and Government Reform. Other rules should address fraud and settlement of trades, he said. Greenspan's office released the text ahead of the hearing scheduled for 10 a.m. in Washington.
The comments contrast with Greenspan's aversion to increasing financial supervision as Fed chairman from August 1987 to January 2006. He said in a May 2005 speech that ``private regulation generally has proved far better at constraining excessive risk-taking than has government regulation.''
Several posters have stated the facts that Freddie and Fannie, the GOP talking points, are actually a very small part of the real crisis. If you take the time to read the AIG CEO and ex CEO statement to Congress you will see it wasn't Freddie and Fannie that made them one day from insolvent, it was their completely unregulated trading in credit default swaps. Those CEOs still sat there and blamed mark to market accounting, which makes you put the value of the asset at the time on your books. They don't ever address the fact that the derivitive swaps were on their books at values that had absolutely no relation to the value of the asset underlying the swap.
It has been stated numerous times that the, I can't remember the poster but he said it so well, toxic cocktail of the combination of Gramm/Leach/Bliley which allowed banks to branch out into other businesses and the Commodities Futures Modernization Act, both authored by the McCain financial wizard Phil Gramm, caused this problem. If you don't understand this financial stuff, more simply, the value of all mortgages in the US is about $11 Trillion. The value of all credit default swaps, which is an investment that basically bets that the subprime mortgages will fail, is $54 Trillion. Let that sink in for a minute. AND - these instruments are still unregulated right now - this hasn't been dealt with.
So now, Greenspan sits there and says his plan was good, it failed because the people who ran the financial firms were greedy and without honor. In mall parlance...well DUH! It is maddening to hear this now, that all these years Greenspan and members of Congress bought into the idea that financial firms would never do something unscrupulous. Why did we have Glass Stegall in the first place? Because we saw the effect of unregulated bankers and the effect from the Great Depression. Reading what Greenspan says now makes me want to go punch him, Barney Frank and Chris Dodd right in the face.
From a Bloomberg News article published today
http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aOOSejLq_BSM
Greenspan calls for regulation now, and is shocked at how the leaders of financial firms didn't regulate themselves. That assumption is the basis of the whole crisis, simple as that. I blame Greenspan, but I blame in particular every sitting Congressman and Senate on the Banking and Financial Services committees for sitting there and swallowing this Greenspan pablum all these years. Several of them have been quoted as saying they simply didn't want to look like a dumbass by saying the truth, which was that they had absolutely no idea what Greenspan was talking about. They never challenged him to explain in layman's terms his theories.
So, why are we in this mess? Because the honor system failed to keep in check people with no honor. The same people that failed to have an honor in the late 20s and 30s.
I really hope Obama seizes on this total reversal from Greenspan. This should be the final nail in the coffin of McCain's entire economic plan. For the second time in our history, the greed and corruption of unregulated bankers has caused an economic meltdown.