Alan Greenspan is famous for not making clear what he's thinking. But he was clear about one thing: he said markets should be deregulated.
Those favoring market regulation said people can't be trusted not to act in their own self-interest, and so markets need regulation. Regulators felt that humans were vulnerable to motives of greed and power, and that creating opportunities for people to indulge their greed caused people to demonstrate a lack of integrity.
Now the New York Times points out that Greenspan says the reason markets failed is because people can't be trusted not to act in their own self-interest.
As the Times summarizes: "The problem is not that the contracts failed, [Greenspan] says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as “'the pharmacist who fills the prescription ordered by our physician.'”
“In a market system based on trust, reputation has a significant economic value,” Mr. Greenspan told the audience. “I am therefore distressed at how far we have let concerns for reputation slip in recent years.” Or as he said in an earlier time: “There is nothing involved in federal regulation per se which makes it superior to market regulation.”
The New York Times reports that in 2000, speaking to Congress, "Mr. Greenspan said that Wall Street could be trusted. 'There is a very fundamental trade-off of what type of economy you wish to have,' he said. 'You can have huge amounts of regulation and I will guarantee nothing will go wrong, but nothing will go right either.'”
So really, is Alan signaling that he agrees with the need for regulation? Here's a summary:
- Regulators: People demonstrate a lack of integrity when given opportunities to indulge in greed. They need to be regulated so they will not abuse the system for their own self-interest.
- Greenspan: People using derivatives got greedy. A lack of integrity spawned the current crisis. The market would have worked properly if people had more integrity.
- Conclusion: Greenspan agrees in principle with those who seek more regulation, and (almost) admits some accountability in creating the mess we're in.
Okay, he finally came out and admitted his error.