October 25, 2008
In a remarkable appearance before the House Committee on Oversight and Government Reform on Thursday, detailed in Friday’s New York Times, Alan Greenspan, former Ayn Rand groupie and Federal Reserve Chairman, who used to be treated like the Oracle of Delphi when he deigned to visit Capitol Hill, admitted that he may have been naive in his understanding of how the world works: “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.” Greenspan was instrumental in blocking attempts to regulate the new financial instruments that proliferated in the ‘90s, which Greenspan now admits were instrumental in creating what threatens to become a global financial meltdown: “The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower.” Greenspan even admitted that the derivatives market, worth trillions and virtually unregulated at Greenspan’s insistence, needs oversight.
The financial market can easily devolve into gambling with other people’s money, as this finanical crisis has once again shown. Counting on the gamblers to police themselves is naive. Whoever wins in November will need to begin prudent reregulation of the financial markets.
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