Forgive me, this is going to ramble, but mostly because I am really, really upset by what I am hearing in the Committee on Oversight right now.
Alan Greenspan was "shocked, shocked I tell you!" that the house of cards has fallen. He sees the problem as subprime mortgages. "We didn't know that a deterioration in the standards was occuring until 2005."
"I made a mistake in thinking banks could protect themselves."
I would suggest, Alan Greenspan is obfuscating with his "toxic mortgages."
It's not just about mortgages. It's about the whole philosophy of trickle down, absolutely free-market, unregulated economics, and it began with Milton Friedman bucking varieties of theories carefully designed to plan regulation, proposed by notable economists from Adam Smith (18th century) to John Meynard Keynes (20th century.)
It was spurred on by the likes of Ronald Reagan, Arthur Laffer and Jude Walinsky.
These "economists" advocated that any "fettering" of economic and financial institutions, whether banks, brokerages, or you-name-it, would be hampered by regulation.
Many of us remember the Reagan deregulation of the airline industry.
This deregulation of the airline industry had predictable effects, short and long term. Short term, prices dropped as airlines competed for better fares. Long term, well, can we look at harried air traffic controllers, stressed pilots and panicked airline staff, shoddier treatment of passengers, and all this before 9/11.
Then, 9/11, and we all know what it feels like to fly the "friendly skies" since then.
Now, I am not placing blame for 9/11 on Reagan, or on his decision to deregulate the airline industry. I am not knowledgeable enough about cause and effect in economics to do that, but I am saying what the panel this morning, chaired by Henry Waxman, involving Oversight and questioning Cox, Greenspan and others, is quite interesting.
Out of this panel discussion emerge statements by Christopher Cox, SEC Commission Chairman, that he has full knowledge of better practices to better regulate our financial institutions. "This is a much chastened industry after what has gone on."
Out of the panel discussion emerge statements from Alan Greenspan that he is "shocked" at the outcome of the bubble of the housing industry.l
When pressed by the wonderful Dennis Kucinich, D-Ohio, Alan Greenspan said that he had "no idea" there was a housing bubble until around 2006.
Well, John Maynard Keynes was writing long before 2006 about the dangers of unregulated capitalism. Presumable, Alan Greenspan had the opportunity to read John Meynard Keyens long before 2006.
As I write this, Alan Greenspan admits he has no response to the final question of how this collapse could have happened. Yet he was one of the "blind men and the elephant" that Chris Cox just alluded to. Cox claims that, like the parable, all those involved in protecting the economy saw their own section of it and thought it had certain characteristics, but no one person or agency saw the big picture.
As Rep John Yarmuth (D.Kentucky) says it, "All of you let the ball go through your legs....and some of the problem was unforseeable, but some of it was foreseeable."
Let me put this idea forth for your consideration. This happened because all the individuals and agencies tasked with protecting the economy wanted so badly for supply-side theory to succeed, that no one dared said that this emperor had no clothes.
Some of us mere mortals saw right through the Laffer-curve early on. It didn't take a Ph.D. in economics to see that massive deregulation of hundreds of institutions would result in a massive problem.
You can't take money out of an economy by refusing to monitor, let alone tax corporations, while lowering taxes on the wealthy, and simultaneously conduct a foreign policy so costly in treasure, not to mention American lives.
It's clearly a recipe for disaster, and I can't believe that Alan Greenspan is saying he is "shocked" that the whole system collapsed.