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chairman of the Federal Reserve Alan Greenspan admitted that he was
wrong. His free market policies at the helm of the Fed—such
as the refusal to regulate new complex financial derivatives and reliance
on market players to discipline themselves—contributed to our global
of regulation plus the invention of complex financial instruments has
always been the recipe for disaster, as a panel of experts concluded earlier
this month and we discussed on OurValues.org. And, it’s happened again.
was long considered an infallible financial deity, a hero of the American
economy. Artist Erin Crowe celebrated Greenspan by painting more
than 50 portraits of him. The last one, painted on his last day
at the Fed in January 2006, sold on eBay for $150,400. You can
see a slide show of Crowe’s portraits here.
fall from grace occurred last Thursday, when he was grilled by the House
Oversight and Government Reform Committee. You can see his testimony
how deeply the financial catastrophe has shattered Greenspan’s free
market ideology—his deeply held values about the economy and the way
it is supposed to work. Representative Henry Waxman, a democrat
from California, asked, “You found that your view of the world,
your ideology was not right, it was not working?”
precisely,” Greenspan responded. “You know, that’s
precisely the reason I was shocked, because I have been going for 40
years or more with very considerable evidence that it was working exceptionally
admitted that faith in the ability and will of market actors to self-discipline
was a mistake. Self-discipline is a central article of faith in
free market doctrine. It says that market actors are smart enough
and self-interested enough to avoid doing dumb things that imperil the
system or themselves. Here’s what he said:
made a mistake in presuming that the self-interests 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.”
ignored warnings about the dot com bubble and crash, and the recent
housing bubble, Wall Street crash, and our global financial crisis.
But warnings go unheeded when they don’t fit one’s worldview.
Believing is seeing. Not believing is not seeing.
do you think of Greenspan’s mea culpa? Were his free market
values wrong? Should we re-regulate the economy, or will that
exacerbate the problem?