Thursday, October 23, 2008

Lack of imagination

Greenspan "shocked" at credit system breakdown
By Mark Felsenthal Mark Felsenthal
23 Oct 2008
WASHINGTON (Reuters) – Former Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is "shocked" at the breakdown in U.S. credit markets and said he was "partially" wrong to resist regulation of some securities.

Despite concerns he had in 2005 that risks were being underestimated by investors, "this crisis, however, has turned out to be much broader than anything I could have imagined," Greenspan said in remarks prepared for delivery to the House of Representatives Committee on Oversight and Government Reform.

Is lack of imagination a Republican trait?

Note: in previous testimony before Congress as Fed Chair, Greenspan acknowledged that if things went south, it could be very bad... but discounted this as an extremely unlikely possibility. I've noted before that most of us facing very bad but very unlikely possibilities buy insurance to mitigate the bad outcomes should they, in fact, occur! In the present case, "insurance" was available in the form of increased regulation, perhaps requiring more substantial cash reserves, perhaps limiting certain types of trades,... I'm not a financial or regulatory expert, but I'm pretty sure that some regulatory limits on the deified 'free-market' would have mitigated some of the bad things we are now experiencing.

Yes - it would have cost something... all insurance costs something. But the main costs would have been borne by the folks being regulated - they'd not have been able to play quite so freely. As it has turned out, without this regulatory insurance, it's costing a lot! - and the costs are being borne by the Government.

Stop the madness!

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