Legal Commentary

Greenspan 'Shocked' That His Free Market Wisdom Was 'Flawed'

By TChris

Not quite an apology, not exactly a mea culpa, but Alan Greenspan managed to confess that he was sorta kinda wrong while claiming to have done the best he could. Criminal defendants who make such a half-hearted attempt to accept responsibility during sentencing hearings usually wind up serving a long stretch in prison.

Former Federal Reserve Chairman Alan Greenspan said a "once-in-a-century credit tsunami" has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed.

"Yes, I found a flaw," Greenspan said in response to a grilling from the House Committee on Oversight and Government Reform. "That is precisely the reason I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well." Greenspan said he was "partially" wrong in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected.

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Here's what Greenspan "expected":

In May 2005 speech, Greenspan said that "private regulation generally has proved far better at constraining excessive risk-taking than has government regulation."

Of course, "private regulation" isn't regulation at all. And we've seen how well the absence of regulation constrains "excessive risk-taking." Alan Greenspan might be shocked by the revelation that greed isn't always self-regulating, but it's not as if the idea hadn't been suggested to him in the past.

Committee Chairman Henry Waxman, a California Democrat, said Greenspan had "the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis."

"You were advised to do so by many others," he told Greenspan. "And now our whole economy is paying the price."

More Waxman:

"Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite," he added, saying that the mantra became "government regulation is wrong".

That mantra is long overdue for retirement. It should have retired with Greenspan.

Full post as published by TalkLeft on October 23, 2008 (boomark / email).