the "genius" speaks!
Greenspan admits to 'flaw' in ideology
By Alan Beattie and James Politi in Washington
Published: October 24 2008 03:00 | Last updated: October 24 2008 03:00
Alan Greenspan, the former Federal Reserve chairman, said yesterday the credit crisis had been "much broader than anything I could have imagined".
Mr Greenspan admitted that there had been a "flaw" in his governing ideology.
Questioned by Henry Waxman, chairman of the House of Representatives oversight committee, the former Fed chief said he had "found a flaw" in his thinking. "I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was such that they were best capable of protecting their own shareholders
," he said.
Mr Greenspan described the past two decades as a "period of euphoria
" that encouraged participants in the financial markets to misprice securities, and accepted he had been wrong to assume that lending institutions would carry out proper surveillance of their counterparties
. "I had been going for 40 years with considerable evidence that it was working very well," he said. "The whole intellectual edifice, however, collapsed in the summer of last year
In the second of two days of packed hearings in which lawmakers and regulators clashed over blame for the financial crisis, Mr Waxman lambasted what he called "the prevailing attitude in Washington . . . that the market always knows best."
He blamed the Federal Reserve for failing to curb aggressive lending practices, the SEC for allowing credit rating agencies to operate under lax standards and the Treasury for opposing "responsible oversight" of financial derivatives.
Mr Greenspan said that when, as Fed chairman, he declined to advocate regulating credit default swaps - financial derivatives that have widely been blamed for worsening the crisis - he had been following the will of Congress.
Christopher Cox, chairman of the Securities and Exchange Commission, said virtually no one had foreseen the meltdown of the mortgage market, or the inadequacy of banking capital standards in preventing the collapse of institutions such as Bear Stearns.
Mr Waxman accused the SEC chairman of being wise after the event. "Mr Cox has come in with a long list of regulations he wants . . . But the reality is, Mr Cox, you weren't doing that beforehand."
Mr Cox blamed the fact that congressional responsibility was divided between the banking and financial services committees, which regulate banking, insurance and securities, and the agriculture committees, which regulate futures
. "This jurisdictional split threatens to for ever stand in the way of rationalizing the regulation of these products and markets," he said.
Republicans on the committee dissented from the Democratic leadership's attacks on federal agencies.
"It wasn't deregulation that allowed this crisis," said Tom Davis, the senior Republican on the committee. "It was the mish-mash of regulations and regulators, each with too narrow a view of increasingly integrated national and global markets." At a separate hearing before the Senate banking committee yesterday, Neel Kashkari, the official responsible for the $700bn US financial rescue plan
, had to defend suggestions by legislators that the Treasury was not being aggressive enough in persuading banks to deploy government money.
I am especially concerned that we're feeding them too much dessert and not making them eat enough of their vegetables," said Chuck Schumer of New York, a senior member of the committee.
Chris Dodd, the Democratic chairman, asked what "guarantees" Treasury could extract from lenders.
Mr Kashkari responded that the Treasury did not want to "micromanage" the banks and said there were bans on increases in dividend payments and share buy-backs.
Copyright The Financial Times Limited 2008
http://www.ft.com/cms/s/0/2d8b550e-a163 ... 07658.html
. is it a wise man, who knows that he is not wise
. it's good to have cynicism but not be cynical
. the more truth you live with, in your life, the stronger you are
. intelligence is merely an attitude to knowledge and learning