I made a mistake in presuming that the self-interest of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms."If Greenspan really said this, it is admission that markets do not self-regulate and that self-interest is not the highest form of government. It then follows that you need actual governments, and that democratic processes can control markets if they want to.
This is in short the self-immolation of 50 years of the right-wing market ideology that he has championed his entire career, that was advanced by the Reagan era, and that Greenspan implemented during his 18 years as the summit of global financial policymaking at the Fed.
The Wall Street Journal reports it slightly differently. And neither statement appears in Greenspan's prepared remarks. The latter are baldly incoherent. Greenspan offers several different explanations for the crazy mispricing of mortgage-backed and other assets, and then says this:
It was the failure to properly price such risky assets that precipitated the crisis. In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivatives markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria.The model collapsed. It collapsed was based on bad history? Think about what this says about the ruling paradigm of finance capital for the last 30 years - gone - and about economic models in general - no better than historical data.
Greenspan is finished, but rescues are being attempted in John McCain's non-stop clown show. Many people have commented on his weird performance on Fox News on Sunday, where he denounces socialism while praising the government bailout. Actually, McCain's position is totally coherent. "Socialism" for McCain means "redistribution" in which incomes become more equal (we've been in the midst of an inequality boom for 30 years). "Bailout" means giving $700 billion to banks, which means maintaining if not extending income inequality. "Socialism" means more money below. The bailout means more money above. McCain's support for bailouts makes perfect sense. (Rick McArthur does a nice job explaining to Amy Goodman why Obama is a conservative and not a socialist.)
Another act that had the center ring for a while was famous investment genius Warren Buffett, who used a piece in the NYT to try to talk all the little frogs back into the boiling water. Buffett says his money is now in stocks, tells everyone to buy stocks without the disclaimer of his own self-interest in helping himself out with this advice, and then tells everyone the only way to make real money is to do the opposite of everyone else. In other words, buy when they panic sell, sell when they frantically buy.
This is irresponsible, reprehensible advice: regular people cannot do the opposite of what everyone else is doing, since the only basis for doing that is the kind of professional training and experience that Buffett has and that you and I do not. Nor do we have Buffett's billions to gamble on buying some real crap cheap, only to see it go down for ever.
Buffett is at least nice about it. Another circus act in the Wall Street Journal abuses Joe Blow investor for not taking enough risks, then for taking too many risks by, at age 55, still being in stocks! The springs are flying out of the Jack-in-the-box.
Maureen Dowd issues the first call for revenge I've seen in the NYT. Now we're getting somewhere.
Dean Baker is best skewerer of the "sorry, it was an accident" school of letting big financial fish off the hook. He was predicting the collapse of the housing bubble for years, and is wonderfully vicious about the protestations of financier innocence that are justifying the bailout. He describes an alternate universe in which Alan Greenspan says in 2002 that there is a housing bubble and uses the Fed to educate the press and the economists and the realtors and the public. Had this happened, he asks,
Does anyone think that the execs at Goldman Sachs, Citigroup, Merrill Lynch and the rest could say "who could have known?" to their shareholders, who just saw most of the value of their stock disappear? My guess is that all of these execs would be out of their jobs and facing lawsuits for neglecting their responsibilities to their shareholders.(See his equally valid dig at the NYT for attributing noble educational motives to wealthy conservatives but not to organizations like his.)
This has been another horrible financial week for Earth, especially its regular folks. While my Google news feeder was telling me that Obama was going to visit his grandmother, Monday's Financial Times was a slow-motion train wreck. " ING takes 10bn E injection from state." "Silicon Valley suffers wave of job losses amid pessimism." "Crisis engulfs the Emirates." That's just the front page. Page 2: "Call for west Europe to support east." "Mexico inquiry into derivatives is widened." "Soeul launches $130bn loan and liquidity rescure." "Pakistan seeking IMF help. " "Rations cut for army of buyers." "Public blame bankers for abusing system." Page 3: "US faces its worst recession in 26 years." "Indicators hint China on verge of sharp slump." The only thing making any money is the Obama campaign (page 4) - and some of the giant banks that got us here. By today it was even worse, with markets in Japan, Korea, and Hong Kong having now lost 50% just this year .
And that doesn't even get to the real economy, where companies are busy flinging their employees into the water.