http://www.nytimes.com/2008/10/24/business/economy/24panel.html
Mr. Cox replied, “There’s no question that somewhere in this terrible mess many laws were broken.”This probably isn't the most important part, but it sits with the theme I've been running with lately: what good are "laws" when the government doesn't actually stop anyone from *breaking* them? We see this problem over and over: the disconnect between "we'll pass a law for X" and "X actually happens." The record is clear: the correlation between passing a law for something and it actually happening is pretty slim. I sometimes think people get confused by social "laws" and scientific/physical "laws", which are entirely different concepts but unfortunately share the same word: physical laws are inviolable (note: there's a much subtler sense in which that isn't entirely true, but that's a subject of some later philosophical note, not a political note), whereas social laws are really just threats: do this, and this other thing will probably happen to you. Like any threat, sometimes it will work and sometimes it won't, and sometimes it will have weird, perverse consequences.
In either case, the point stands: we *passed* a bunch of laws that supposedly should have stopped this from happening, but "many laws were broken." So where were our law enforcers? What good is it to pass laws that don't actually do anything? Isn't this just a cheap facade of "doing something"?
Will we remember this when the inevitable call comes to prevent this from happening in the future by passing even *more* laws? It astounds me that when pouring gasoline on a fire doesn't put the fire out, the majority respond by pouring even *more* gasoline in the fire in the thought that *this* time, it's going to work.
As for Greenspan himself, his fall-from-grace in my eyes is falling as fast as what little net-worth I once had. Of course, that started long before it did for most people: for many, he was the wizard of wall street for much of the last 10 years. For me, his fall from grace started long before that, when he went from being a free-market advocate to holding the reins of one of the more vile tools of central government: central banks. I'm hardly alone in that assessment, and so it doesn't add much for me to repeat those criticisms in depth here (short version: central banks are dishonest at best, since they issue fiat money and as such tax the populace in a hidden way via inflation, and at worst they are a contributor to and even a reason *for* pointless "wars" like the Iraq "war", the "war" on drugs, and the "war" on terrorism. It's part of the machinery of the state of fear and control, and Greenspan should *know* better, he was trained in free markets and decentralization and he's become a turncoat to those ideals).
However, it's worthwhile picking on him for the further capitulations he commits in this testimony:
“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,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”
Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”
On a day that brought more bad news about rising home foreclosures and slumping employment, Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken.
This reminds me of the question illustrating false premises: "Have you stopped beating your wife yet?" Implicit in this exchange is the patently *false* and absurdly so assumption that what Greenspan presided over was "deregulation ideology". Putting aside the inherent sophistry in the term "deregulation" (there is only *regulation*; "deregulation" is a manipulative attempt to convince people that the norm is "regulation", and that anything different is somehow abhorrent and risky), no system with as much central control as the Federal Reserve system can possibly be called "deregulated". I invite you to try minting your own currency and trading in it to see just how "deregulated" the issue of currency in this country is. The fed owns a monopoly on the production of currency, and it prints more whenever it feels like doing so. The private equivalent would be buying stock in a company and then having them print more stock willy-nilly, without compensating you for your now devalued stock. It would never fly in the private sector, which Greenspan pays lip-service to as a "free marketeer", but he's perfectly happy to pull the puppet strings of a deceptive monopoly.
What exactly is the "flaw" that Greenspan has now had his epiphany about?
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.What bothers me about this is now no longer does Greenspan not stick with the principles that formed his origin, he doesn't even *understand* them any longer.
Free-market theory does not say that institutions in a free market *will regulate themselves*. Any 5th grader can see the flaw in that: institutions are composed of people, and people will in the aggregate do what is in their self-interest (with some asterisks that aren't important in this screed). Of *course* institutions need regulation. Even the hardiest anti-free marketeer wants the majority of its businesses to be private, for the benefits of competition and consumer choice on the quality of those businesses has been displayed over and over (I hear no call, say, for the government to take over the car manufacturing business).
What free-market theory properly applied to the problem of regulation says is not that businesses will be self-regulating, but rather that *regulation itself is a business*, and thus like other businesses, the "regulation industry" will be better as a private industry because of the benefits of competition and consumer choice.
Of course we need regulation of our businesses, but we need a private industry in "regulation". Government would not be good at making cars because forced monopolies have no incentive to be efficient, innovative, etc; the same applies to a forced government monopoly on "regulation". Indeed, the failures of our government system to regulate are glaring at us all in the form of zeros in so many bank accounts and foreclosure signs on so many yards. Why do we give a pass to a system that is clearly not working?
Greenspan was intellectually brought up in an environment of free-markets; that he would make this crucial blunder of understanding is at least as unforgivable as his turned-back at the aspects of free-markets that he does understand.
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