As has been commented on a few times here, our poor former Fed Chairman, as befuddled as Secretary of State Rice, came out with his "perfect" defense of his behavior since 1/20/2001. According to his self-satisfied congressional testimony today, nobody could have known that he was pursuing a dangerous path with his indifference to enforcing current regulations and hostility toward new regulations. Nonsense. Any number of people have been warning us about this for a decade, ever since the dot com boom became irrationally exuberant.
Sure Greenspan is willing to admit that he might have been wrong, but he's not responsible:
"I did not forecast a significant decline because we had never had a significant decline in prices," he said.
Of course we had never had prices skyrocket like that in housing either and we had just seen the dot com craze, so it would not be really hard for anyone with any experience in housing, the economy or lending to recognize the warning signs. Only Greenspan is still deluding himself and trying to mislead others about the warning signs.
Prices went up as lending standards dropped. As the New York Times reports: "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," he told the House Committee on Oversight and Government Reform. That works, if and only if, you actually ignore whose self-interest was involved. As long as the people making the loans and selling the collateralized debt obligations have no apparent risk in the deal, they will give loans to anyone who walks in off the street. They are looking to their own self-interest: Get fees, let others take risks.
Was Greenspan really that out of touch with the market? Possibly, but it doesn't appear to be that it happened because he didn't understand it. Rather, his dogmatic view of how the world should work, shaped in part by Ayn Rand's Objectivist doctrines leavened with the mindless hatred of regulation that appears to be the only thing that Milton Friedman's acolytes managed to learn from that Nobel Prize-winning economist, allowed him to turn a blind eye to actions that were completely consistent with everything we know about human nature.
It was nice to see Congressmen mocking him, even if it is a bit late. Like most humans, America, Congress included, seems to be much better at learning from its mistakes than from common sense advice and the experience of others. People like Jim Grant, quoted here, by the Post
"Markets and societies move on belief systems," said James Grant, editor of Grant's Interest Rate Observer and a longtime critic of Greenspan. "The belief system of finance featured the notion that someone with unusual power to see around corners and through walls and into the future was running things, and that someone was Alan Greenspan."
aren't really happy to be proven right.
That is a serious problem. People who went to law school don't, as a rule, want to learn all about econometrics. They like creating rules that have words in them. They like people and working with people. Greenspan was a person who did, for a long time, instill confidence, but, he was a pusher, a pusher of easy credit and hiding risk. He acts as if he really believed that deregulation helps. He barely accepts any blame for the catastrophe that was brought upon this economy.
I can see why. He was lionized for the skill with which he supposedly kept the economy going, even after the dot com bust. Someone who has had his ego stroked for as long as he has, is unlikely to take criticism very well. Still, we have to learn that there isn't anything new. Credit default swaps should have been regulated as insurance long ago. Had they been, a number of the abuses that allowed them to get out of control would never have happened. Other derivative debt instruments needed better disclosure of risk. The Fed could have made this happen, but it didn't. Why? According to Greenspan, no one brought it up.
Who would he have expected to bring it up? A newly-hired staffer who is in awe of him but knows he hates regulation? Who? When you are being treated as a god, you are responsible for all of the failing, especially the ones of omission because no one is going to want to cross you, no one. Sorry, Mr. Greenspan, but you haven't even started to apologize or admit your failings. You are still wedded to the easy dogma that blinds you from reality.