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I anyone else as disgusted with Alan Greenspan as I am?

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October 23, 2008 – Comments (9)

 

“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 circa 2004

I have been thinking about Alan Greenspan's role in the current financial crisis this morning, probably because he is scheduled to testify today before the House Committee of Government Oversight and Reform.  I'm sure that I wasn't the first person to hammer on "The Maestro," but I have been bashing him in my blog since February.  He absolutely disgusts me.  What I wrote about him back then still applies today, but the more we find out about this financial crisis, the more I feel that he was as responsible as anyone for the mess that we currently find ourselves in.

Here's what I wrote on the subject back in February:

"Because a huge chunk of this mess that we’ve gotten ourselves into now is Alan Greenspan’s fault.  Did Bernanke lower the Federal Funds rate to almost nothing and leave it there for years creating the mother of all housing bubbles...no, it was Greenspan.  He borrowed from Peter to pay Paul as the saying goes, or in this case I suppose that he was borrowing from Ben to pay Alan, pushing off a little economic pain years ago [the bursting of the tech bubble] for a much worse situation today.  Then just when things are about to get really bad, Greenspan just rides off into the sunset and makes more money than the average U.S. citizen could ever imagine in the private sector by writing books, consulting, and giving speeches while poor Bernanke is left to clean up his mess.  I realize that Bernanke is not blameless in this whole situation, but he certainly didn’t start it."

I understand that everyone makes mistakes, even me if you can believe that, but what infuriates me more than the mistakes that Greenspan made is his complete lack of accountability.  If you screw up, own up to it.  I will have a lot more respect for you.  Greenspan has repeatedly refused to accept any responsibility for his role in the financial crisis

This morning I came across a great article on Mr. Greenspan and how he is as responsible as anyone for the current financial crisis: Taking Hard New Look at a Greenspan Legacy.

I already mentioned how I feel about Greenspan's role in inflating the housing bubble, but this article talks about the role he played in the world of derivatives.  For those of you who aren't familiar with them, and I suspect that most who visit this site are by now, derivatives are completely unregulated...at least until now...financial instruments that were developed to hedge against investment losses. 

The creation of and trading of derivatives, along with securitization, encouraged companies to take much more risk than they normally would have if they didn't have this form of insurance and if they actually had to keep some of the paper that they were issuing on their books.  Since 2002, the derivatives market has increased nearly fivefold, from $106 trillion to its current $531 trillion.

Instead of protecting companies from risk, derivatives are now actually making banks more risk averse and less willing to lend money to each other.  No one really knows who has exposure to what and everyone is sceptical of how derivatives contracts are being valued.

For over a decade Mr. Greenspan was one of the leading proponents against government regulation of the derivatives market and at the time his opinion carried a lot of weight.  Here's what he said on the subject at a Senate hearing in 2003 “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so...“We think it would be a mistake” to more deeply regulate the contracts.

Anyhow, Greenspan and his smug refusal to acnowledge that he played any part in the mess that we find ourselves in today makes me sick.  Perhaps he will change his tune in today's testamony, but I doubt it.  I hope that they hold his feet to the fire.

Deej

9 Comments – Post Your Own

#1) On October 23, 2008 at 10:08 AM, TMFDeej (99.43) wrote:

P.S. sorry for the spelling mistakes and typos at the end.  I just noticed them and CAPS doesn't have a spell check, grumble, grumble.

Deej

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#2) On October 23, 2008 at 10:38 AM, columbia1 wrote:

Deej- If you would like spell check, download the Google tool bar :)

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#3) On October 23, 2008 at 11:11 AM, TMFDeej (99.43) wrote:

I would but them they would be able to watch my every move ;).

 

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#4) On October 23, 2008 at 11:18 AM, lquadland10 (< 20) wrote:

AHH.... TMFDeej.... The government does that now who ever you use. ;p)

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#5) On October 23, 2008 at 12:33 PM, eldemonio (98.87) wrote:

I am.  Alan Greenspan falls into the "Put them down because they are no good to themselves or others" category. 

There is only one thing worse than a Monday Morning Quarterback telling us "I told you so", and that is a stubborn wrinkly a$$ old dude who refuses to admit his mistakes. 

Not regulating derivatives becaue we can trust Wall Street to do the right thing is like eliminating laws because we can trust citizens to act righteously. 

Self-regulation only works in the movies.    

 

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#6) On October 23, 2008 at 4:56 PM, Gingerbreadman55 (29.47) wrote:

"Self-regulation only works in the movies. "

 - Or when the most profitable options lead a company/industry/sector to do the "right" thing

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#7) On October 24, 2008 at 5:10 AM, DemonDoug (79.27) wrote:

Deej, you could not be more disgusted with Greenspan than I am.  I believe that he has probably done more damage than most dictators in all of human history (and we can throw the neocons in there too because the politics and the economics are one in the same, not two separate entities).

I believe that along with every CEO of every homebuilder, investment banking house, and subprime mortgage company, greenspan should be arrested and thrown in jail for fraud at the least, and treason at the worst.

"Self-regulation only works in the movies. "

 - Or when the most profitable options lead a company/industry/sector to do the "right" thing

GBman: self-regulation does not work because the people that make the most money without outside regulation are the cheaters, liars, fraudsters, and outright thieves.  If there were no regulations, Ponzi schemes would be 100% legal.  And you bet they would be prolific in number if there was no regulation of it, because there are a lot out there even though it is illegal.  If anything taught you anything over the past 10 years, it should be that in an environment of no regulation, it's the biggest liars and losers who win the most.  (See: every CEO and executive of an investment bank.)

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#8) On October 24, 2008 at 10:08 AM, dwot (51.50) wrote:

Well, I wasn't calling him Greenspunk, Greenspit, Greensnot, etc., in my posts as terms of endearment...

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#9) On November 06, 2008 at 12:07 PM, tally2007 (69.60) wrote:

So sad that our economy is in this pitiful state and interesting that everyone is so completely blameless.

It's not that I'm looking for a scapgoat. How does one learn from the past in order to implement improvement for the future?  

First, we must at least determine who and what went wrong in order to make changes. Agreed?

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