October 23, 2008

"A flaw in the model that I perceived is the critical functioning structure that defines how the world works.”

Greenspan says oops.


Fred4Pres said...

Was that an apology Alan. I think I missed "I'm sorry."

And before the Dems start patting themselves on the back, how about an apology from Rubin, Frank, Dodd, and others who are equally culpable.

Pogo said...

Hey, Alan: no shit, Sherlock.

In other news, socialism, which similarly skews incentives, and is also doomed to failure for the same reasons as the mortgage disaster, receives Obama's imprimatur.

bleeper said...

Hey, socialism is going to work here. All the best and the brightest have assured us that it was just done wrong elsewhere.

I am tired of working and am looking forward to my check for doing nothing. It is a sound plan and nothing can go wrong.

Bissage said...

So all Mr. Greenspan did was testify?

I thought he was supposed to commit seppuku or something.

You want to know what’s wrong with this country?

I’ll tell you what’s wrong with this country.

It’s gotten soft.

Chip Ahoy said...

I do believe I've just been shoveled the biggest load of compost ever dumped at my feet.

In his testimony, Mr. Greenspan blamed the problems on heavy demand for securities backed by subprime mortgages by investors who did not worry that the boom in home prices might come to a crashing halt.

How it can be reported that Greenspan condemns demand for securities backed by subprime mortgages without first condemning legislation that insisted upon unsound subprime mortgages simply does not compute.

reader_iam said...

How can I condemn myself for eating too much candy without first condemning the existence of candy and candymakers.

reader_iam said...

Ever wonder whether that lousy bit of legislation might have gotten attacked sooner if investors hadn't started bingeing on the securities?

I have.

AJ Lynch said...

"Impramatur" I have always liked this word. Plus it is definitely bi-partisan.

AJ Lynch said...

BTW Trooper you made a nice try wise guy.

I caught somewhere on this blog you told Althouse the WS teams are rank amateurs. Heh I won't take that bait- can't get mad - life is too good these days. Go Phils!

Doyle said...

Hey, socialism is going to work here. All the best and the brightest have assured us that it was just done wrong elsewhere.

Repealing Bush's tax cuts for rich people is not socialism. The United States has had a progressive tax structure for a long time. If Obama is a socialist than so was Reagan, Nixon, Eisenhower...

You people are idiots.

bleeper said...

Aw, Doyle has decided to call people names. Isn't that precious.

Anyway, if I read your rant correctly, we will now move from socialism to capitalism. This is a bad thing, in terms of my government check, right? I want my check and I want it now. And it better be more than it was last month. Or do I have to get a job now? Doyle, you make it all so confusing.

In any case, I support Obama now - he is my hero, as he is clean _and_ articulate.

Doyle said...

Or do I have to get a job now?

Um, I think since welfare reform in the 90s (which I supported) you've had to get a job.

bleeper said...

Doyle, you are just so cute! You know everything, and are ever so smart. Now get back to your fry cooker, they are ready now.

reader_iam said...

Hey, socialism is going to work here. All the best and the brightest have assured us that it was just done wrong elsewhere.


It's not the idea(s), it's who implemented them!!!!

Where have I had heard something like that before, and from whom, and with regard to what?

Bloody marvelous, I say.

rhhardin said...

Actually the cause is pretty hidden.

The problem is some instability, and the free market is just the organization that it's realized in.

Two things that help set it up are sub-prime mortages and mark to market accounting rules.

There's no isolated cause. You just want not to put in braces and beams that cause the whole structure to wobble and collapse in a wind.

Stockholders get put at risk because managers don't know about the instability either. They had planned on bailing out at a downturn, not thinking that the markets would world-wide be closed to bailing out when the time came.

A world-wide margin call is something only regulations can produce.

rhhardin said...

Managers also avoided risk in 1987, when they carefully had portfolio insurance. They'd simultaneously trade in the options market and the stock market and so avoid losing money.

What they had not realized was that the options market would have to close until everybody lost enough money for it to open again. Nobody would take the other side of the trade they wanted to do.

But their risk was what they thought on paper, and in regulations. It's just that the assumptions didn't allow for a market locking up and closing.

Greenspan doesn't have to be surprised at managers; they're as ignorant of how things work as he is, and everybody is.

Don't try to do social engineering with the market, might be a bit of wisdom.

ricpic said...

Greenspan made money dirt cheap and didn't anticipate the inevitable excesses that would follow?

It's called criminal irresponsibility.

Doyle said...

Greenspan made money dirt cheap and didn't anticipate the inevitable excesses that would follow?

Worse than that, really. He explicitly advocated some of those excesses (e.g. interest only and negative amortization loans).

AJ Lynch said...

In defense of Greenspan, if he did advocate interest-only and negative amortiozation loans, maybe he was just blinded by liberal ideology and wanted everyone to have a chance to have a mortgage.

You can't fault him for that can you Doyle?

Doyle said...

Nice try, but Greenspan is an Ayn Rand fanatic, not a liberal, and the lenders weren't making these bad loans because they wanted poor people to have homes but because they could then sell the loans and make them someone else's problem.

I don't even have time to explain all the ways in which the CRA/Carter theory of the financial crisis is utterly ahistorical wingnut bullshit.

rhhardin said...

How cheap money is is already determined by leading indicators of inflation.

The Fed doesn't really set interest rates. It uses one in order to control whether it increases the money supply faster or slower, according to a monthly determination whether it's too fast or too slow, and that's determined by inflation, not housing policy.

If it's too fast or too slow, the Fed changes the target interest rate a little bit and creates money at whatever new rate that achieves it.

There's no hook for housing policy in that.

Quayle said...

Oops. I'm so sorry.

When, on my watch, banks started using SIVs to take debt off their books so they could stay within the required debt to asset ratios (SIVs being the same legal corporate structures abused by Enron) I decided to turn a blind eye. I guess I made a teensy-weensy mistake.

Sorry for not accounting for the amount of cash already taken out of the tech bubble before it burst, and adding tons and tons more dollars to the market. One year I said it looked like a bubble, and the next year I said it was a marvel of productivity increase. I guess it was a bubble. Whoops.

Sorry for thinking that monitary policy was old hat, and that control of fed interest rates was the only tiller needed to guide the ship.

Sorry for not acconting for all the dollars the Japanese and Chinese were creating through forex, and spraying more liquidity on the markets to "help."


rhhardin said...

How do you get dollars out of a stock bubble?

Every buyer has a seller and vice versa. What comes out also has to simultaneously go in.

Pogo said...

Greenspan: "Face it. You fucked up - you trusted me! Hey, make the best of it! Maybe I can help."

hdhouse said...

I am soooo sympathetic to your "sorry".

I'm down 48% thank you Alan.

I'm sorry too Alan.

mccullough said...

This story repeats the usual canard that Bill Buckner cost the Red Sox the '86 World Series.

The game was tied when Buckner committed his error in the bottom of the 10th in Game 6. Even if Buckner had made the play, it is pure speculation to say the Red Sox would have won that game.

As it was, the Mets forced a Game 7, which they won pretty easily. The entire Red Sox team was responsible for losing Game 7.

Only the New York Times and Congress would blame one guy for causing something that a group of people was responsible for.

Quayle said...

How do you get dollars out of a stock bubble?

You sell when the stock is high. You take money out of equities and put it somewhere else.

This is what happened. When the tech stock bubble popped, all the value of the stocks went to money heaven. (Just what happened recently.)

But Greenspan underestimated or uncercounted the amount of money that had already been taken out of stocks before the drop.

Therefore, he pumped a calculated amount of money into the economy thinking that there was only X amount of dollars there, when in reality there was multiples of X dollars out there.

That would be like you thinking you had to fill up an entire pool with water, not realizing that the pool was already 1/3 full.

The result is too much water.

rhhardin said...

``How do you get dollars out of a stock bubble?''

You sell when the stock is high. You take money out of equities and put it somewhere else.

So, if I understand it, you sell your stock for $1000 let's say. You give up the stock and take the $1000. Doesn't somebody who previously had $1000 now have your stock instead?

If so, how has money left the market?

Greenspan is only interested in the total dollars out there, not how many you yourself have.

The other guy, after all, has $1000 less, making up for your gain.

As they say in economics, follow the woman.

Bob said...

Andrea should have coached him a bit more. What he really wanted to say was "I screwed this up so bad you need to bring me back and pay me double to unscrew it." Left unsaid is "the Democrats made me do stupid things and you wouldn't listen when Bernacke say it was bad. Too bad for you."

chan.boon.kwee said...

Alan Greenspan is old and senile for donkey years. He actually believes that freedom can help achieve progression in the finance world! And that his model believes to help define how the world works?!

He's never in the right frame of mind when he thinks and speaks. I bet he's just entertaining the crowd shooting questions away. What will they do to him even if he's cause such a big mess?! pay up??? What a big joke!

ElcubanitoKC said...

I actually watched the whole statement on PBS, and I didn't get that he was saying capitalism is wrong, or that the market model was wrong, or that we needed more regulation. He said that the people operating within the model, violated its basic principles and they were the flawed ones.

Good morning to all.

chan.boon.kwee said...

Now 10 banks is going to return 68 billion to the US government, hopefully this money does not get circulated, otherwise there will be a wide spread increase in the inflation.