First, he now approves of a "socialistic" approach to the Crunch:
Indeed, a necessary condition for this crisis to end is the stabilization of home prices in the United States. They will stabilize and clarify the level of equity in U.S. homes, the ultimate collateral support for the value of much of the world's mortgage-backed securities.
At a minimum, stabilization of home prices is still many months in the future. When it arrives, the market freeze should begin to measurably fall, and frightened investors will take tentative steps towards reengagement with risk.
Broken market ties among banks, pension and hedge funds and all types of non-financial businesses will become reestablished, and our complex global economy will move forward. Between then and now, however, to avoid severe retrenchment, banks and other financial intermediaries will need the support that only the substitution of sovereign credit for private credit can bestow.
"Sovereign credit" is Alan-speak for "government bailout."
I think the following is the most important statement he's made since 2002 when he admitted that he lost confidence in "self-interest" as an effective control over the accountants:
GREENSPAN: 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. ... So the problem here is something which looked to be a very solid edifice and, indeed, a critical pillar to market competition and free markets did break down.
The moral should be that reliance on self-interest failed us with the accountants and its failed us with the banks and other institutions. The conclusion should be that self-interest is an ineffective market regulator and Greenspan seems to be coming close to that conclusion:
WAXMAN: Dr. Greenspan, I'm going to interrupt you. The question I have for you is you had an ideology. You had a belief that free competitive -- and this is your statement. "I do have an ideology. My judgment is that free competitive markets are by far the unrivaled way to organize economies. We've tried regulation. None meaningfully worked." That was your quote.
You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. And now our whole economy is paying its price. Do you feel that your ideology pushed you to make decisions that you wish you had not made?
GREENSPAN: Well, remember that what an ideology is. It's a conceptual framework with the way people deal with reality. Everyone has one. You have to. To exist you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is yes, I have found a flaw. I don't know how significant or permanent it is. But I have been very distressed by that fact.
But if I may, may I just finish and answer the question previous to this?
WAXMAN: You found a flaw in the reality...
GREENSPAN: A flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.
WAXMAN: In other words, you found that your view of the world, your ideology was not right, it was not working.
GREENSPAN: Absolutely, precisely. 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.
Alan's still in some denial but he seems to be coming around.
1 October 23, 2008 Thursday
REP. HENRY A. WAXMAN HOLDS A HEARING ON THE ROLE OF FEDERAL REGULATORS
LENGTH: 36264 words
COMMITTEE: HOUSE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
SPEAKER:
REP. HENRY A. WAXMAN, CHAIRMAN
LOCATION: WASHINGTON, D.C.
WITNESSES:
FORMER FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN
FORMER TREASURY SECRETARY JOHN SNOW
SECURITIES AND EXCHANGE COMMISSION CHAIRMAN, CHRISTOPHER COX
HOUSE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM HOLDS
A HEARING ON THE ROLE OF FEDERAL REGULATORS
OCTOBER 23, 2008
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