Guardian UK: End of the Greenspan error

[marmar]

End of the Greenspan error
In saying he was "absolutely" wrong about how markets behave, Alan Greenspan has admitted his own ignorance

Thomas Noyes
guardian.co.uk, Friday October 24 2008 17.00 BST


There was a time when investors and members of Congress hung on Alan Greenspan's every nuanced word. Now and then some may have politely suggested that perhaps he should ease up on interest rates, but they would never have dared to think that his encyclopedic view of the economy was in any way flawed or mistaken.

Yesterday Greenspan broke that bubble by admitting that he may have been wrong in an appearance before the House oversight and government reform committee:

I 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," Mr. Greenspan said.

The mistake was fundamental.

"You found that your view of the world, your ideology was not right, it was not working?" said California congressman Henry A Waxman, the committee chairman.

"Absolutely, precisely," Greenspan said. "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 well."

To hear Alan Greenspan admit that his way of seeing the world was "absolutely, precisely" wrong is to mark the end of an era. There was a time when Greenspan conferred his blessing on the proliferation of derivatives. He opposed regulating derivatives because they spread the risk and made cheap credit more widely available. ......(more)

The complete piece is at: http://www.guardian.co.uk/commentisfree/cifamerica/2008/oct/24/alan-greenspan-economy-crisis