Practice Management

Alan Greenspan Versus The World - The Debate Matters To Law Firms

By Brian J. Ritchey

There are differences in opinion on regulation of financial markets.  On the one hand, Alan Greenspan takes a mostly hands-off approach to financial markets, except when risks to the economy appear.  Martin Wolf, among others, have criticised Mr. Greenspan for his policies that they believe contributed, even caused, the current credit crisis.

They both seem to enjoy sparring via the Financial Times.  For a little background, read what Mr. Wolf wrote of Mr. Greenspan after he retired as Federal Reserve Chairman (requires registration to read).  It was written about in the New Economist blog with a summary. 

In March, Mr. Greenspan opined in the Financial Times that regulation won't create a "perfect model of risk".   He concludes:

"Thus it is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition."

Mr. Wolf responded in his forum with nine points in opposition to Mr. Greenspan (read through the comments to see Mr. Wolf's response).   He and others criticised the former Chairman for keeping interest rates too low for too long after the brief recession of 2001.  This, they maintain, led to the massive asset bubble fueled by great liquidity.  Mr. Wolf also aludes in one of his points that far too little attention is still being given the "excessive savings outside of the United States".  Some fear global inflation in excess of 5% will be the result.

Mr. Greenspan answered in the Economist's Form section of the Financial Times that was published in print April 7th in an Op/Ed piece.  Again, Mr. Greenspan set the rules of the game as black and white: 

"My view of the range of dispersion of outcomes has been shaken, but not my judgment that free competitive markets are by far the unrivaled way to organize economies. We have tried regulation ranging from heavy to central planning. None meaningfully worked. Do we wish to retest the evidence?"

Mr. Wolf responded on April 8th in an editorial titled, "Why Greenspan does not bear most of the blame".  He grants many of Mr. Greenspan's arguments, but finishes:

"Regulation cannot be perfect.  But the worse the outcomes now become, the more difficult it will be to defend free financial markets at all.  Without a credible design for regulatory improvement, it will prove impossible."

The arguments on both sides are well worth the time spent reading and provide a better understanding of the likely debates to be held later this year contemplating additional regulation of the financial markets.  The breadth of reach that resulting legislation will have affects just about every area of the legal market in some shape or form.  The thought leaders are debating it right now.  Take some time and read the opposing views.  On whose side do you favor?

We have begun taking submissions for the 2008 Law Firm Economic Survey.  If your firm is interested in participating, please contact Brian by clicking here.

Full post as published by More Partner Income on April 11, 2008 (boomark / email).