Friday, October 24, 2008

Greenspan: Oops! Turns out there is no invisible hand

marjorie says...

Just in case you all missed it, Alan Greenspan was grilled by the House Committee on Oversight and Government Reform yesterday.

From the New York Times:

“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.”

From the Wall Street Journal:
The 82-year-old Mr. Greenspan said he made "a mistake" in his hands-off regulatory philosophy, which many now blame in part for sparking the global economic troubles. He quoted something he had written in March: "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief."

In other words, there is no Invisible Hand. I believe that would be the flaw he's speaking about.