Thursday, February 19, 2009

Alan Greenspan's role in the financial meltdown

Huffington Post


Was Greenspan hoodwinked into thinking people are not selfish, and would safeguard others' interests before their own? Lending institutions are not independent entities as defined legally, but consist of selfish individuals who look after their OWN self interests before their employers'. The man who believes so strongly in the power of the free market, the power of enlightened self-interest, should have anticipated that at some point, selfishness will overpower the collective of individuals, leading to systemic problems that resulted in the financial meltdown. The Founding Fathers were more wise than Mr. Greenspan, and insisted on systemic checks and balances to ensure the Community's interests are protected against the powerful self-interests of the rich and powerful.


Nobel Laureate Joseph Stiglitz adds other culprits as crucial to the making of the current economic crisis. Among them:

1) the April 1998, decision of President Clinton's Working Group on Financial Markets to quash a proposal by Brooksley E. Born, head of the Commodity Futures Trading Commission, to regulate derivatives;
2) enactment of Gramm-Leach-Bliley Act on November 12, 1999 allowing consolidation of commercial and investment banks;
3) passage of the Commodity Futures Modernization Act of 2000 removing derivatives from federal oversight;
4) the Bush tax cuts of 2001 and 2003;
5) the failure of the Federal Reserve to take responsibility for regulating derivatives; and
6) the Securities and Exchange Commission decision in April, 2004, to allow large investment banks to increase their debt-to-capital ratio from 12 to 1 to 30 to 1, or higher.

What each of these actions (and inactions) has in common is that Greenspan either initiated or endorsed them.

The rejection of Commodity Futures Trading Commission chief Born's proposal to regulate derivatives was backed by Treasury Secretary Robert E. Rubin and Securities and Exchange Commission Chairman Arthur Levitt Jr., both members of the Working Group on Financial Markets, but, according to most accounts, Greenspan led the charge.

"[T]hose of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief."

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