The end of an Error

Last week Alan Greenspan the heretofore unassailable Architect of the Free Market, the acolyte of Ayn Rand and rabid Libertarian said in not so many words I'm sorry. I'm guessing in some small way this "Act of Contrition" will assuage the guilt he feels for bringing us this mess. But did he really say he was sorry? Or caution us against repeating the steps that led us down this path. Not exactly.

It is inaccurate to say that Greenspan did not rely on any regulation. The problem was he relied on "Market Forces" or "Voluntary Regulation" by means of sound decision making. However most financial officers reasoned that before these sub-prime loans became a liability they would be sold and the origination and closing fees where theirs to keep. A lot of money was made doing this very thing but a lot of banks loaned 30 dollars for every 1 dollar they had on hand. This was clear violation of one of the few regulations that was still on the books. But what did Wall Street do? They created these complicated financial instruments to clean up their balance sheets know as Credit Default Swaps (CDS). However since the instruments where new and investors where doing well the CDS's were not regulated. This combination of weak, voluntary, and non-regualtion was a toxic brew which the taxpayer is now being forced to drink.

So what did Greenspan say? It's not my fault that I followed a flawed philosophy it's the fault of the loan officers, the hedge fund managers, and the mortgage holders for not making sound decisions. That is the problem with ideologues they never question why their philosophy doesn't fit reality but why reality doesn't fit their philosophy.

Greenspan does call for more regulatory oversight but that rings hollow when up until recently he decried that very notion.

"Apology" if that's what you call it, not accepted.....

You can read Greenspan's testimony here.