Five years too late:Former Federal Reserve Chairman Alan Greenspan said a “once-in-a-century credit tsunami” has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed.
“Yes, I found a flaw,” Greenspan said in response to a grilling from the House Committee on Oversight and Government Reform. “That is precisely the reason I was shocked because I’d been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
Greenspan said he was “partially” wrong in opposing regulation of derivatives and acknowledged that financial institutions didn’t protect shareholders and investments as well as he expected. Forecasting is an inexact science, he said.
Greenspan flashback:
The admission that free markets have their faults was a shift for the former Fed chairman who declared in a May 2005 speech that “private regulation generally has proved far better at constraining excessive risk-taking than has government regulation.”
Not this time around. In the interviews I’ve heard Greenspan discuss the current financial crisis, he has always distanced himself from the problem. This may be the first time I’ve heard him admit that he was part of the problem.
Greenspan also contributed to the crisis by leaving interest rates too low for too long, promoting growth of the housing bubble. No mention in the article whether or not he has now discovered a flaw on that front.
Congress facilitated the problem by giving too much leeway to “The Maestro.” Those days are over:
Waxman and other lawmakers repeatedly interrupted Greenspan as he answered their questions, in contrast to deference to his testimony while he was Fed chairman.
They should have been asking their questions years ago.
Now we are saddled with a huge mess. Professor Nouriel Roubini, who has a better track record in predicting this downturn than most pundits, sees darker clouds ahead:
Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.
“We’ve reached a situation of sheer panic,” Roubini, who predicted the financial crisis in 2006, told a conference of hedge-fund managers in London today. “There will be massive dumping of assets” and “hundreds of hedge funds are going to go bust,” he said.
. . .
“This is the worst financial crisis in the U.S., Europe and now emerging markets that we’ve seen in a long time,” Roubini said. “Things will get much worse before they get better. I fear the worst is ahead of us.”