Greenspan: The Oracle’s mea culpa

If there were any lingering doubts that free-market capitalism is dead, said The Dallas Morning News in an editorial, they were “blown to smithereens” last week by Alan Greenspan’s appearance on Capitol Hill. Greenspan, revered as the Oracle during his two-decade-long tenure as chairman of the Federal Reserve, came to Congress a humbled man, admitting sheepishly that there was “a flaw” in his economic philosophy. He’d spent his life, Greenspan testified, convinced that markets, and societies, work best when not fettered by government meddling and regulation. In the grip of this quasi-religious belief, Greenspan kept interest rates extremely low in the early part of this decade, creating a monstrous housing bubble, and opposed all attempts to regulate the trading of exotic financial instruments, such as the mortgage-backed securities at the heart of the current crisis. “I made a mistake,” Greenspan conceded, saying that the worldwide collapse of banks and financial institutions had left him “in a state of shocked disbelief.”

Greenspan still doesn’t get it, said Tim Rutten in the Los Angeles Times. His error, he told Congress, was assuming that the “self-interest of organizations, specifically banks,” would keep them from engaging in stupid and corrupt financial trading. The flaw in this theory, as any kindergartner could have explained, is that a bank is a building, not a person. The fateful decisions to buy and sell billions of dollars of dubious derivatives were taken not by banks but by people who work at banks, whose rational self-interest told them accurately that with a little fancy paperwork they could retire at 29 and move to Tahiti. These executives and traders had no loyalty to the companies that employed them, nor did they care about long-term consequences of their wheeling and dealing. That was obvious to nearly everyone—everyone, that is, without Greenspan’s “ideological blindness.”

That’s a bit too harsh, said Zachary Karabell in Huffingtonpost.com. Unlike the parade of Wall Street execs who’ve told Congress that the destruction of their companies just wasn’t their fault, Greenspan was “genuinely contrite” and at least “took responsibility for his mistakes.” In fact, there was actually something “sad and noble” about Greenspan’s testimony, as if, at 82, he was delivering one last lesson for the world—not about interest rates or housing bubbles, but about the danger all of us face when we allow our ideas to harden into ideologies that we don’t dare question.