1 Boring Old Man

^{that’s George Washington in the background, frowning}

The Fed Didn’t Cause the Housing Bubble
Any new regulations should help direct savings toward productive investments
By ALAN GREENSPAN

We are in the midst of a global crisis that will unquestionably rank as the most virulent since the 1930s. It will eventually subside and pass into history. But how the interacting and reinforcing causes and effects of this severe contraction are interpreted will shape the reconfiguration of our currently disabled global financial system.

… the growth path of highly competitive markets is cyclical. And on rare occasions it can break down, with consequences such as those we are currently experiencing. It is now very clear that the levels of complexity to which market practitioners at the height of their euphoria tried to push risk-management techniques and products were too much for even the most sophisticated market players to handle properly and prudently.

However, the appropriate policy response is not to bridle financial intermediation with heavy regulation. That would stifle important advances in finance that enhance standards of living. Remember, prior to the crisis, the U.S. economy exhibited an impressive degree of productivity advance. To achieve that with a modest level of combined domestic and borrowed foreign savings was a measure of our financial system’s precrisis success. The solutions for the financial-market failures revealed by the crisis are higher capital requirements and a wider prosecution of fraud – not increased micromanagement by government entities.

Any new regulations should improve the ability of financial institutions to effectively direct a nation’s savings into the most productive capital investments. Much regulation fails that test, and is often costly and counterproductive. Adequate capital and collateral requirements can address the weaknesses that the crisis has unearthed. Such requirements will not be overly intrusive, and thus will not interfere unduly in private-sector business decisions.

If we are to retain a dynamic world economy capable of producing prosperity and future sustainable growth, we cannot rely on governments to intermediate saving and investment flows. Our challenge in the months ahead will be to install a regulatory regime that will ensure responsible risk management on the part of financial institutions, while encouraging them to continue taking the risks necessary and inherent in any successful market economy.

This really isn’t a good time for Alan Greenspan to be suggesting anything, much less suggesting that we not micromanage the financial industry. It’s just not the right time for him to do much except go off into the desert with John Galt and leave us alone. His financial wizard days are over.

And as for the Wall Street Journal, I wonder if Bernard Madoff is writing an op-ed tomorrow to tell us about the importance of Hedge Funds?

Comrade Greenspan says that the Ministry of $$ didn’t do it…
at-largely
By Larisa Alexandrovna

Former Fed Chairman Alan Greenspan has a rather strange little column today in the Wall Street Murdoch. But instead of snipping parts of it for you to read, I think a better use of your time would be to read Mathew Yglesias’ take on this:

I’m not entirely sure what to make of what Alan Greenspan has to say on his own behalf. But I am quite sure that he’s dodging what I would think would be the main issue Alan Greenspan needs to address regarding Alan Greenspan and the housing bubble, namely the time Alan Greenspan fueled the bubble in 2004 by urging people to go get Adjustable Rate Mortgages. Now I don’t know how much impact that advice had. Or how much impact advice given in the other direction might have had. But I do know that it was weird for Greenspan to even be commenting on the issue. And that his advice was bad advice. In retrospect, it looks disastrous. Even at the time, many observers found it bizarre.

Or as John Cole nails it:

Why is this man not in hiding in Argentina or Uraguay? Why is he allowed to speak in public? And for the record – I want so much regulation of the financial sector that if someone at Goldman Sachs wants to take a piss, he has to get a hall pass from Dennis Kucinich. They don’t like it, they can move to Iceland and see how they feel about bankers.

I am so with Cole on this.