Democracy for Vancouver

From Alan Greenspan’s attemp at self-exculpation in the Financial Times this weekend, We will never have a perfect model of risk:

The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.

Home price stabilisation will restore much-needed clarity to the marketplace because losses will be realised rather than prospective. The major source of contagion will be removed. Financial institutions will then recapitalise or go out of business…
…
Risk management systems – and the models at their core – were supposed to guard against outsized losses. How did we go so wrong?

Well, since you ask:

You went wrong by refusing to recognize the housing bubble as a bubble at all, because it allowed consumers to continue to fuel the economy by burning up inflated equity, which allowed BushCo - and you - to continue to argue that the Bush tax cuts were working. Here you are on April 17, 2002:

The ongoing strength in the housing market has raised concerns about the possible emergence of a bubble in home prices. However, the analogy often made to the building and bursting of a stock price bubble is imperfect. . . Even if a bubble were to develop in a local market, it would not necessarily have implications for the nation as a whole…

And 6 months later:

[I]t is important to recognize that the extraction of equity from homes has been a significant support to consumption during a period when other asset prices were declining sharply. Were it not for this phenomenon, economic activity would have been notably weaker in the wake of the decline in the value of household financial assets.

You refused to recognize that this “significant support to consumption,” based on a massive pile of consumer debt, would force an economic contraction as soon as the equity ran out (thus no more spending) and the bill - adjusted mortgage rates - came due. In February 2003 you said:

[O]wing to continued large gains in residential real estate values, equity in homes has continued to rise despite sizable debt-financed extractions. Adding in the fixed costs associated with other financial obligations, such as rental payments of tenants, consumer installment credit, and auto leases, the total servicing costs faced by households relative to their incomes are below previous peaks and do not appear to be a significant cause for concern at this time.

You see all the signs of risk, but refuse to recognize them as risk. I wonder why? Maybe because this increased sense of wealth among homeowners made them more likely to identify with the über-rich, and therefore build support for making the Bush taxcuts permanent? As you said in February 2005:

The rapid rise in home prices over the past several years has provided households with considerable capital gains. . . [F]rom the perspective of an individual household, cash realized from capital gains has the same spending power as cash from any other source.

“Capital gains” - magical words that only apply to people who have investments, so if you have capital gains, you must be rich, and if you’re rich, you must want tax cuts, right? Right?

And it might have pricked the bubble early, before your term was up, if you had actually raised the alarm about:

The increase in the prevalence of interest-only loans and the introduction of more-exotic forms of adjustable-rate mortgages are developments of particular concern. … some households may be employing these instruments to purchase homes that would otherwise be unaffordable.

…instead of putting them in the middle of another droning speech, without any call for either government- or self-regulation. After all, you wouldn’t want the government to step in and regulate banking, would you? As you wrote in your op-ed yesterday:

The crisis will leave many casualties. Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress. Those of us who look to the self-interest of lending institutions to protect shareholder equity have to be in a state of shocked disbelief. But I hope that one of the casualties will not be reliance on counterparty surveillance, and more generally financial self-regulation, as the fundamental balance mechanism for global finance.

Because self-regulation worked so well over the past few years? Is the buyout of Bear Stearns what you have in mind when you speak of self-regulation - despite the hit that the financial and stock markets are taking as a result?

What’s also interesting is how you view “today’s financial risk-valuation system” as a “particularly hard hit” casualty of the current crisis - and not the hundreds of thousands of individuals facing foreclosure and loss of value in their investments, retirement accounts and pensions as a result of our dependence on the enlightened self-interest of self-regulation.

Do you never see the actual people hurt by policies, Mr. Greenspan? Have you no sense of decency sir, at long last? Have you left no sense of decency?

Either way, please STFU. You’ve done enough damage.

UPDATE - Jude Toche at First-Draft says it best:

Can’t we bring back crucifixion for these cocksuckers? Or at least scourging? This piece of shit is now responsible for a small town being unemployed. Think about that. There will be at least 10,000 firings since JP Morgan bought Bear Sterns for pennies on the dollar. That’s the size of a small town. Ten thousand people who, like the Enron employees, held portfolios that were loaded with shares of the company where they worked. Ten thousand people, most of whom just wanted to show up to work, draw a paycheck, make ends meet, and enjoy their families and lives.

And, from the NYT blog via Atrios:

Perhaps moreso than any other major investment securities firm, Bear promoted a culture of circled wagons, an us-against-the world camaraderie. As part of that effort, the investment bank paid a significant portion of its employees’ compensation in stock. On its Web site, Bear says that its employees own about one-third of the firm. That translates into about a $5.23 billion loss on paper for Bear’s employees over the last year, as the firm’s stock plunged 79.4 percent.

It’s Enron all over again.