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.”

The polls in several battleground states are tight. A small number of votes could swing the outcome one direction or another. An unknown variable that has lingered over this campaign is: Will race be a factor that tips that balance of the election? Is the Bradley Effect in play with pre-election polls? Will undecided voters disproportionately break for the candidate of their own race?
Brian Schaffner looks for answers to these questions by comparing pre-election and exit polls in the 2006 Tennessee Senate race. In that contest Harold Ford, a black, challenged white candidate Bob Corker. Ford trailed Corker by 4% in late campaign polls and ultimately lost by 3%.
Schaffner compared Ford’s support with early deciders and late deciders. His conclusion?

[I]f you believe the comparison, then the experience from Tennessee in 2006 would suggest that there is little reason to expect late deciders to break against Obama because of his race. To the contrary, Ford actually did slightly better among late deciders in 2006, something that allowed him to finish a few points closer than pre-election polling had indicated. If a similar dynamic works for Obama, he may win by a larger, not smaller, margin than the current polling suggests.

Are Tennessee voters a representative sample from which we draw this conclusion? I don’t have a reason to believe that they are any less racially sensitive than the nation at large. There’s no unique Tennessee tradition of supporting black candidates for statewide office. Since Tennessee is marginally part of the old “South” one might argue that a black candidate is at a bigger disadvantage than in many other parts of the country. So it’s not a giant leap to conclude that if race only had a negligible affect on late-deciding voters in the Tennessee senate race, it may not be a significant factor for late deciders in the 2008 presidential election.
Since Ford over-performed polls, the Tennessee precedent also discounts the impact of the Bradley Effect. It doesn’t support the theory that voters told pollster they were voting for Ford, then voted for Corker.
It will be a positive turn in America if the election plays out this way–if Obama is not penalized because he is a black candidate. It’s been my working assumption that Obama will under-perform late polls by about 2%, due to racial bias, inaccurate polling methodology, low young-voter turnout, or whatever. I hope I’m wrong.

Andrew Lahde ran the small hedge fund Lahde Capital, which made its name last year when it made a whopping 866% return, thanks to its subprime trades. Lahde unexpectedly quit his one-year-old fund, distributing a letter to his investors. The Big Picture has the letter, which is an interesting read. Among the highlights:

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.
. . .
On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt.

That’s a pretty sweeping indictment of the people Lahde believes got us into this financial mess.

Atrios:

It’s long been somewhat frustrating that while we all know that liberals are supposed hate America, it’s actually Republicans who hate Americans. Lots of them. Anyone not of their tribe gets chucked out of the country.

Indeed. I’ve had it with politicians and pundits calling people, with whom they disagree, “anti-American.” Or talking about “pro-America” areas of the country. Or saying particular parts of states are not “real.”
It’s the tired rightist tactic of dividing the electorate and portraying people in the other camp as being inferior. I wish big media would call this crap out in a meaningful and devastating way.

Last month I credited Senator Harry Reid with making a candidly honest comment regarding the financial sector meltdown:

“No one knows what to do. We are in new territory here. This is a different game. We’re not here playing soccer, basketball or football, this is a new game and we’re going to have to figure out how to do it.”

Since then it’s become apparent that no one–not Congress, not the White House, not the Department of the Treasury, or the Federal Reserve–has a handle on the problem.
The most recent evidence of this is the Fed’s announcement that it will inject capital into banks. This, as the Daily Show notes, comes just a couple weeks after Secretary Paulson dismissed that idea.

So after all of that Capitol Hill brouhaha regarding the huge bailout bill, we’ve basically been told after just a few days, “Never mind, that idea was off-track anyway. We’ve got a new plan.”
Another way policymakers have gingerly discussed this concept is to talk of giving the Fed “a wide array of tools at its disposal.” In other words, if we give enough things to try, perhaps it will eventually discover the correct wrench.
What’s emerged is a picture of governments and central banks ad libbing because they don’t have a handle on the problem. This weeks’ market exuberance notwithstanding, I still don’t think they do. Credit market indicators are still at distressed levels. And in the bigger picture, the economy is getting worse, not better. So I think the stock markets are ultimately headed down–likely breaking through last week’s lows.