Alan Greenspan, owner and chief public relations director of the reputation of Alan Greenspan, is seeking a bailout at the expense of the free market philosophy he has long championed. In today's New York Times, we are treated to the spectacle of the erstwhile oracle of free market fundamentalism seeking to recapitalize his reputation by writing down his exposure to the economic philosophy most analysts have viewed, at least until recently, as the asset underlying that reputation.
Such a daring decoupling of a derivative reputation contract from its underlying asset philosophy has rarely been tried in the midst of a crisis of this scale. Generally reputation managers such as Mr. Greenspan take short-term writedowns in the hopes that their losses can be recouped by a future biographer when the fog of history settles in. It remains to be seen what the result will be.
From a press release obtained by the Times:
The problem is not that the contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as "the pharmacist who fills the prescription ordered by our physician."
Correct me if I'm wrong, but isn't it a principle tenent of free market philosophy that individual market participants are constrained by competitors such that any participant's "moral" failings will be punished and corrected by market forces?
Greenspan argues that the market failed because "people...got greedy". He argues that the market was pushed into crisis by a "lack of integrity" on the part of unreliable peddlers of financial contracts. Is this not to argue that the free market is not in fact a self-correcting, magic-pony-ride but rather a human institution requiring extra-market controls to regulate ordinary and expected human behavior such as greed, lack of integrity and inaccurate claims made by peddlers?
Alan Greenspan is seeking to salvage the reputation of Alan Greenspan by at this late date allowing that free markets don't do what Alan Greenspan built his very reputation insisting they would do. Alan Greenspan has conducted an audit of his reputation's balance sheet only to discover that free market fundamentalism is the toxic asset eating away at it. And like any rational market actor and integity challenged peddler, Mr. Greenspan has leaped out of the earth-bound airplane of the global economy hoping his tattered reputation might yet serve as a golden parachute.
Lest we forget:
Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient. — Alan Greenspan in 2004
via The New York Times' new assignment editor Atrios.