Were You Wrong, Mr. Greenspan? "Partially."
The maestro has acknowledged that his music was off-key. Alan Greenspan, the former Federal Reserve chairman who led the economy through the years during which excesses in the credit and housing markets were building, is on Capitol Hill right now, reckoning with the events that led the nation into its current perilous shape.
Rep. Henry A. Waxman (D-Calif.) ticked off a long list of times that Greenspan, who was called the maestro in Bob Woodward’s book on his leadership of the Fed, extolled the ability of markets to properly price and manage risk.
“My question for you is simple,” said Waxman, in a hearing of the House Oversight Committee that he chairs. “Were you wrong?”
“Well, partially,” said Greenpan, before parsing the distinctions between different types of derivatives that might have been regulated better.
Later in the hearing, Greenspan acknowledged that he is being forced by this deep crisis to rethink some of his deepest assumptions and philosophy about how markets work.
Here is the entire, remarkable, exchange:
Greenspan: Well, remember that what an ideology is. It’s a conceptual framework with the way people deal with reality. Everyone has one. You have to. To exist you need an ideology. The question is whether it is accurate or not. And what I’m saying to you is yes, I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact. . .
Waxman: You found a flaw in the reality...
Greenspan: A flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.
Waxman: In other words, you found that your view of the world, your ideology was not right, it was not working.
Greenspan: Absolutely, precisely. You know, that’s precisely the reason I was shocked because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.
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