Ex Chairman of the Fed, Alan Greenspan – Denial - Not a River in Egypt

Generally, I do not consider myself an armchair quarterback. It is easy to criticize in retrospect when you do not have the responsibility of making decisions. However, in the case of Alan Greenspan, I believe he is fair game since he was lauded as a God during his long tenure as Chairman of the Federal Reserve. I was watching David Faber’s interview with him during the riveting documentary on CNBC about the cause of our financial collapse entitled “House of Cards”. The title of this program for most of us could have equally been called “House of Pain”. I was struck by how smug Greenspan was when David Faber asked him if he could have done something to stop this banking crisis. He said, unapologetically, that he knew the banks were taking on a great deal of risk since he had discussed this with the various managements of these banks. He said the failure was that these bank executives assured him they would know when to stop, and obviously they didn’t. He went on to say that, basically, regulation would have been ineffective since human beings will always find a way around it; that’s part of the human condition. Furthermore, he said very confidently, he believed we would have the same conversation in the distant future, maybe 20 or so years from now.

It is fair to say that regulation is not going to prevent every indiscretion in the financial industry. He is right about human nature. However, we are not talking about just any indiscretion since this crisis will go down as one of the worst in our history. It is embarrassing to think that we, the United States, not Mexico, Latin America, or Russia, were responsible for creating this worldwide financial mess. This crisis did not happen abruptly, without any warning. All we have to do is review what happened in 1998 when Long-Term Capital almost collapsed the financial system. If a hedge fund just the size of Long-Term Capital could have brought down our financial system as a result of too much leverage, that should have been a warning shot across Greenspan’s ship’s bow.