Earlier this morning, I wrote a comment that summarized the arguments made in more or less good faith to defend market deregulation in the face of the crisis today:
- globalisation made these changes inevitable (technological progress cannot be undone, capital can alays move around, etc...)
- they provided 25 years of unprecedented freedom and prosperity (somehow the impact of the crisis is not included in the calculation of that 'prosperity')...
- crises are inevitable and thus are a price worth paying to get the above 'prosperity'...
- regulators are paid less than bankers, thus are less bright, thus less good at their jobs, and will thus never catch the bankers, so it's not worth regulating anyway...
- the only alternative is State planification and that is Really Evil (look at the Soviet Union or, worse, France)
Little did I know that Greenspan had yet again been given a public tribune to shamelessly spew the same evil arguments.
All my points are there, in almost the exact order I imagined them (that's probably my "luck" as a banker: I'm in their midst, and know how they think...)
- these changes were inevitable:
The extraordinary risk-management discipline that developed out of the writings of the University of Chicago's Harry Markowitz in the 1950s produced insights that won several Nobel prizes in economics. It was widely embraced not only by academia but also by a large majority of financial professionals and global regulators.
This is a slight variation to my theme, in that here, it's progress in the field of economics that has made the development of new financial instruments possible. Note the shameless, direct homage to the University of Chicago. This is not the argument as someone who is penitent.
- and 3) We had great prosperity, and crises are an inevitable, but acceptable, side effect:
Free-market capitalism has emerged from the battle of ideas as the most effective means to maximise material wellbeing, but it has also been periodically derailed by asset-price bubbles and rare but devastating economic collapse that engenders widespread misery. Bubbles seem to require prolonged periods of prosperity, damped inflation and low long-term interest rates. Euphoria-driven bubbles do not arise in inflation-racked or unsuccessful economies.
He's even more shameless here: bubbles are a sign of success! They come only in times of unprecedented prosperity!
- Regulators are incompetent and useless; they cannot and should not be reinforced:
I do not question that central banks can defuse any bubble. But it has been my experience that unless monetary policy crushes economic activity and, for example, breaks the back of rising profits or rents, policy actions to abort bubbles will fail. I know of no instance where incremental monetary policy has defused a bubble.
(...)
But it is incumbent on advocates of new regulations that they improve the ability of financial institutions to direct a nation's savings into the most productive capital investments - those that enhance living standards. Much regulation fails that test and is often costly and counterproductive. Regulation should enhance the effectiveness of competitive markets, not impede them. Competition, not protectionism, is the source of capitalism's great success over the generations.
Since he counts only the (fake, unsustainable) 'prosperity' in the upwards part of the bubble as a criteria of what works, it's obvious that he would think that breaking that trend is a bad thing. Again, that presuspposes that the lower growth then, followed by a more sustainable development after, is a worse outcome than the boom and crash we have now. What he does acknowledge unwittingly is his own incompetence at his job, described by one of his predecessors as "taking away the punchbowl as the party is in full swing." He failed - and I'll say and repeat that he did it on purpose, because bubbles are a great environment for wealth transfer from those without assets (most of the population )to those with assets (the haves and havemores).
But what he does now is perpetuate the flawed yardstick by which to measure "capitalism" (in his twisted mind's version): the boom part of the cycle. I'm sure that a lot a systems look great if you only look at the good bits, and purposefully ignore or dismiss the downside.
- The compulsory reference to Socailist France or Communist Russia. Ding ding we have a winner:
I do not recall bubbles emerging in the former Soviet Union.
Yes, he actually wrote this.
But it's smart: it's part ofa continued trend to say that bubbles are a sign of success, a small roadbump that does not change the "undoubted success" of capitalism (as demonstrated during the boom years).
No, no penitence there.
Oh, and in case you had any doubt: his solution to the crisis is to keep on shovelling taxpayer cash to banks to cover their losses:
The overall need [to fill the holes in bank balance sheets] appears to be north of $850bn. Some is being replenished by increased bank cash flow. A turnround of global equity prices could deliver a far larger part of those needs. Still, a deep hole must be filled, probably with sovereign US Treasury credits.
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As he explains, banks need to bear about $1 trillion in losses and, poor things, investors now require from them higher returns to compensate for the risk (which one? that of not being bailed out right away?), so they need a little bit more capital than before, say a few hundred billion more. Taxpayers can pay that easy, right? No questions asked (pretty please).
And then, promised, they'll go back to lending and to creating prosperity.
And the worst part is that many people still believe this. I despair.