Comments on: Greenspan’s apology: Still MIA A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Chase Fri, 11 Sep 2009 06:27:45 +0000 Totally agree. The next couple years should be interesting.

By: Griff Fri, 11 Sep 2009 00:39:43 +0000 I’d agree with the below statement, but mark an addendum that in broad terms, credit / asset markets were at historical lows as measured by risk premia. IE, I can recall a FFELP student loan ABS bond (5yr avg life) which priced ~ LIBOR + 5bps…just ridiculous. Corporate markets were similarly distorted, in particular bank & finance-related names.

“In my opinion this crisis was caused by a decade of historically low interest rates combined with government spawned incentives to spur mortgage lending created an atmosphere where risks in the housing market were skewed dangerously low. I think it would be pretty hard to argue with that statement.”

As for the political solutions presently in place…what’s a catastrophe followed by another disaster ?? Frank, Pelosi, Reid…what a train wreck.

By: Chase Thu, 10 Sep 2009 23:49:00 +0000 Do you believe that Glass-Stegall or any other repealed regulation would have wholly prevented the financial collapse? I doubt that anyone could make that claim and be taken seriously because even though it would have unquestionably helped matters, it could not have stopped it cold.

In my opinion this crisis was caused by a decade of historically low interest rates combined with government spawned incentives to spur mortgage lending created an atmosphere where risks in the housing market were skewed dangerously low. I think it would be pretty hard to argue with that statement.

That isn’t to say that there is no place for regulation, though I think efforts would be better placed in improving transparency. Rather, that if the goal is to stop the business cycle from being as severe as it has been this time around around then we need to stop the government from intervening to skew risk assessment and allow interest rates to float appropriately without fed intervention in all but the most extreme cases.

It seems the current administration has all but rejected both proposals however and is keeping its gloves on in terms of regulation while also reserving the right to intervene to further skew the markets. But at least bonuses will be lower!

By: Griff Thu, 10 Sep 2009 22:30:35 +0000 PS: I am not rabid anti-Wall Street nor anti-capitalist, despite what these postings suggest. Yet it is quite amazing to observe how self-congratulatory the industry had become: hiring largely top-flight quality talent, only to subsequently flounder from boom to bust every 5-15 years. It just does not add up…too many smart people at these firms. If you continue to hire the best/brightest…just how in the hell can it be perpetually & cyclically wrong almost to the “T”

I don’t care how brilliant the PhD, MBA and mathematicians are…2 + 2 = 4. Always has, always will.

By: Griff Thu, 10 Sep 2009 22:20:54 +0000 Those were simple examples of a few ideas where Greenspan got it wrong. Here is another…several years ago the SEC thought it a good idea to allow additional leverage at the IB broker/dealers. That didn’t work too well. There are myriad sources for the debacle, of course…and yet, a recurring theme is that certain aspects of the financial industry show a reckless abandon / disregard when billions stand to be made, only to cower like children when the landlord comes to get paid.

Citigroup is example A,B,C and D of what went wrong when Glass-Steagall was repealed. That act went into place AFTER the fact, for the record…so Sanford Weill actually brokered a deal and THEN the law was changed. Nothing more American than that, of course.

The big banks/brokers continued to argue for, and generally received, lighter regulation. Yes, the light-touch regulations that lead to innovative designs like CDO-squared. Brilliant people may have devised them, but I give them no leeway when these busted vehicles were sold to simpletons in China or Iceland, of all places.

What happened when the equity markets crash in 1987…portfolio insurance gone horribly wrong.

Back in 1998, Greenspan + Rubin arranged for the systematic delevering of LTCM. Which proves one point: Wall Street never learns nor listens from history. The only guarantee we can carry forward is in another 15-20 years there is bound to be yet another cycle.

And who gets hurt: not the big players or big traders, but the innocents like folks in the massive operations dept or working the cage for daily settlements.

By: Chase Thu, 10 Sep 2009 20:40:07 +0000 if you’re blaming the financial crisis solely on the repeal of Glass-Steagall and lack of regulatory oversight in the OTC markets then you should probably check a few more sources …

By: Griff Thu, 10 Sep 2009 02:50:55 +0000 1. Repeal of Glass-Steagall, for which he was on board (feel free to fact-check it…I don’t imagine his opinion went without notice)
2. Brooksley Born was in favor of regulatory oversight for the young but building CDS markets in the late 1990s. Rubin + Greenspan = Brooksley was over-ruled

Greenspan has been on record, multiple times, that markets are self-regulating and self-correcting, and the invested interests will keep the animal spirits behaved.

He also thoughts Americans would do well in pursuing more Adjustable-rate mortgages, given a speech during 2003 I believe.

By: Chase Wed, 09 Sep 2009 22:45:13 +0000 What exactly were the “deregulations” that Greenspan was responsible for?

Sure, keeping interest rates too low for too long. But deregulation?

By: Dollared Wed, 09 Sep 2009 18:32:23 +0000 Felix, you are right to point to human nature, but your homocide analogy could be improved.

Homocide is a fact of life, and so are guns. But Greenspan wanted no regulation of weapon sales or ownership, and he wanted to disband the police force, because the best judge of public safety is, of course, is the generalized wisdom of the public at large.

Yet it was precisely Greenspan’s job to be the public safety regulator. His job was to remember human nature and act as a curb on the predictable problems that could result from human behavior. Instead he acted as the president of the Chamber of Commerce.

He does owe us an apology.

By: Gaute Wed, 09 Sep 2009 17:10:17 +0000 “once in a century” is a strange way of book keeping. There has been at least three crisis this serious the last 101 years, counting from 1907 and ending 2008. It reminds me very much of some slides promoting a link note to investors, very intolerant to increases in the spread, and conveniently enough the time line started sometime in 2001 just after the spread had decreased from a spike.