The Year of Saving Face
One needn’t have been an economic guru to understand that, when calamity comes, folks will look to save face. Some will point fingers. Some will bow their heads in contrition, but with resolve. And some will disavow their beliefs in an attempt to do both. Alan Greenspan appears to be doing that last:
Greenspan’s interrogation by the House Oversight Committee was a far cry from his 18 1/2 years as Fed chairman, when he presided over the longest economic boom in the country’s history. He was viewed as a free-market icon on Wall Street and held in respect bordering on awe by most members of Congress.
Not now. At an often contentious four-hour hearing, Greenspan, former Treasury Secretary John Snow and Securities and Exchange Commission Chairman Christopher Cox were repeatedly accused by Democrats on the committee of pursuing an anti-regulation agenda that set the stage for the biggest financial crisis in 70 years.
“The list of regulatory mistakes and misjudgments is long,” panel chairman Henry Waxman declared.
Greenspan, 82, acknowledged under questioning that he had made a “mistake” in believing that banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions. Greenspan called that “a flaw in the model … that defines how the world works.” …
“A critical pillar to market competition and free markets did break down,” Greenspan said. “I still do not fully understand why it happened.”
I’ve no information, of course, that Mr. Greenspan had indeed been operating under a better model, but I note that this report, at least, skirts the catalyst of that breakdown. It has seemed to me that banks initially stepped outside of their self-interest-driven caution because the government had, via Fannie Mae and Freddie Mac, given the impression of protecting their investors for them. That shift created a bandwagon onto which investment leaders were compelled to leap when it turned out to be a monetary bonanza.
The principle is similar to the unexpected expansion of those depending on a social safety net, when one is installed. A group on the margins finds it worth its while to let go of the sheer face of economic struggle and recline in the net. Others observe the disparity in lifestyle (and the decrease in stigma) and join them, without much thought to the maximum capacity of the supports.
I’ve always thought the name “Greenspan” to be a curios one for a money man, but it’s nowhere near the league of the name of “the Treasury official overseeing the bailout program”: Neel Kashkari. As I’ve quipped before, I wouldn’t dare use such obvious names in a work of fiction.