Greenspan tries to play the ingenue
Alan Greenspan attempted to mimic Michael “Heckuva Job, Brownie” Brown during his testimony before congress yesterday. Mr. Greenspan attempted to place blame squarely on anyone except himself. Mr. Brown’s performance in the same role was slightly more credible because he was utterly unqualified for the job he held, a claim Mr. Greenspan cannot make.
Mr. Greenspan claims to have been overtaken by events so rare that no one could have seen them coming. He called it a “once-in-a-century credit tsunami” and that it was impossible for anyone to have been prepared for it. Mr. Brown made the same claims about hurricane Katrina and the destruction of New Orleans with every bit as little justification. The record of warnings about both disasters is substantial and undeniable.
“Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity — myself especially — are in a state of shocked disbelief,” said the former Fed Chairman. He called this “called this “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.” This statement by itself boggles the mind. If it is true then Mr. Greenspan is a naive and gullible fool with no understanding of how business actually operates. It is also possible that this was a self-serving lie. I do not know which explanation to prefer. Either way makes me tremble at the thought he was in charge of the Fed for 18 years.
Mr. Greenspan studiously refused to accept any shred of responsibility for the crisis, pointing his fingers at  investors who did not understand what would happen when home prices stopped surging upward. “It was the failure to properly price such risky assets that precipitated the crisis,” he said, making no mention of the absurdly lax regulatory environment that made these bad loans possible.
The consequent surge in global demand for US subprime securities by banks, hedge and pension funds, “supported by unrealistically positive rating designations by credit agencies was, in my judgment, the core of the problem,” he said. “It was the failure to properly price such risky assets that precipitated the crisis.”
This was precipitated by Mr. Greenspan’s alleged inablity to understand that the desire for personal profit frequently trumps fiduciary responsibility. The role of government is to — at the very least — regulate the corrosive effects of greed on how business operates. That is why there are laws and courts dedicated to the enforcement of the terms of contracts and trades.
Mr. Greenspan’s comments bring to mind the scene in Casablanca where Claude Raines closes down the Rick’s casino as he pockets his winnings. His rationale: “I’m shocked, shocked to find that gambling is going on in here!” At least Raines’ character, Capt. Renault, had the good grace to admit he was a cynical SOB.
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Greenspan tries to play the ingenue
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