Greenspan's culpability
Somehow, I missed this article in Thursday's NYT, which details the political wrangling which resulted in the deregulation of the derivatives market. That deregulation is one of the primary causes of the current financial crisis, and Alan Greenspan's anti-oversight zealotry sits square in the middle of it. The article gives an exhaustive treatment of the politics behind Fed policy in this particular situation, and at every step of the way, Alan Greenspan used his prodigious authority to block any attempt at regulating the markets.
His ill-conceived notion that markets can and will self-regulate is based on a delusional, greedy, and utterly naive worldview stemming from Ayn Rand's objectivist "philosophy" (and I use that word loosely). The heart of Greenspan's failure is summed up in this section of the NYT article:
The problem is not that the [derivative] contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as "the pharmacist who fills the prescription ordered by our physician."
Greenspan's failure rests in the delusion that actors within a market will behave honorably. For some reason, Greenspan believes there is honor among thieves:
In his Georgetown speech [last week], he entertained no talk of regulation, describing the financial turmoil as the failure of Wall Street to behave honorably.
"In a market system based on trust, reputation has a significant economic value," Mr. Greenspan told the audience. "I am therefore distressed at how far we have let concerns for reputation slip in recent years."
His "distress" is misplaced. Since the dawn of civilization, greed has almost always trumped honor. Greenspan either knows this and doesn't care, or he is so breathtakingly naive that he thinks adherence to the half-baked, sophomoric ramblings of a mad Russian solipsist can somehow transform human nature away from its most selfish, base instincts. In either case, he had no business influencing this country's economic system or its approach toward financial oversight.
Here's the real legacy of Alan Greenspan and Ayn Rand, in a nutshell:
After meeting with financial ministers from the G-7 yesterday, President Bush called on world governments to continue working together to stabilize collapsing financial markets. "All of us recognize that this is a serious global crisis and therefore deserves a serious global response," Bush said. Leaders had agreed, he added, to "take decisive action to support systemically important financial institutions and prevent their failure, provide robust protection for retail bank deposits and ensure financial institutions are able to raise needed capital."
If anything good comes out of this crisis, let's hope it includes a realization among policymakers (and the media) that accountability and transparency in our financial markets cannot be left to blind, fundamentalist faith in a failed, delusional gospel of "free" market self-correction; it must be encoded in the law and enforced.