Rep. Henry Waxman runs the House Oversight and Government Reform Committee in a way it hadn't been run in decades before his takeover. The California Democrat really knows how to stick the knife in and twist it. He did so today with former Federal Reserve Chairman Alan Greenspan, who retired as a beloved figure but who has since been found extremely culpable in the current credit crisis because he promoted less government oversight over derivatives.
"Yes, I found a flaw," Greenspan said in response to a grilling from the House Committee on Oversight and Government Reform. "That is precisely the reason I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well."
Greenspan said he was "partially" wrong in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected. Forecasting is an inexact science, he said.
"If we are right 60 percent of the time in forecasting, we are doing exceptionally well; that means we are wrong 40 percent of the time," Greenspan said. "Forecasting never gets to the point where it is 100 percent accurate."
Thanks for telling us now, Mr. Greenspan, after Americans have lost trillions of dollars of value in investments, real estate equity, and, well, you name it. Much of that would have been avoidable if greedy mortgage brokers and Wall Street investment gurus had not been able to sell mortgages to people who could not afford them, bundle them into "derivatives," and then call AIG to sell so-called swaps or insurance policies on the bad debt.
In a May 2005 speech, Greenspan said that "private regulation generally has proved far better at constraining excessive risk-taking than has government regulation."
I'm a recovering believer in the free market. It works in many ways, such as pricing of consumer goods, most of the time. But strong regulation is de rigueur when the free market just doesn't work. You can't protect the environment without government intervention. You cannot support a strong military with a free market. And now we find out, belatedly, neither can you allow fear and greed to rule the financial world without lots and lots and lots of government intervention.