Frontline: The Warning

[Point of Order]

An incredible, INCREDIBLE, piece of journalism documenting how Alan Greenspan tore down the walls regulating derivatives and led to the greatest financial meltdown in the history of the world.

http://www.pbs.org/wgbh/pages/frontline/warning/

Edit to add Congressional testimony shown from Greenspan given on October 23, 2008:

Rep. Henry Waxman: "You have been a staunch advocate for letting markets regulate themselves, and my question for you is simple. Were you wrong?"

Greenspan: "Yes, I found a flaw.. but I've been very distressed by that fact."

Waxman: "You found a flaw in the reality -- ?"

Greenspan: "-- a flaw in the model that I perceive is the critical functioning structure that defines how the world works, so to speak."

Waxman: "In other words, you found that your view of the world, your ideology, was not right?"

Greenspan: "Precisely. That's precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well."

WOW!

 

[bagelchick]

I TiVo'd it, but haven't had a chance to watch it yet. It sounded fascinating.

 

[StormSurge]

Whew. I thought this was about my dog's flea & tick medicine.

 

[poindexter]

Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.

“It’ll happen again if we don’t take the appropriate steps,” Born warns. “There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.”

http://www.ritholtz.com/blog/2009/10/brooksley-born-on-pbs-frontline-tonight-talking-about-the-financial-crisis/

Like a hamster on a wheel.

 

[Twoback]

When I heard this guy quoted on a statement he made about the economy recently, it occurred to me it's like listening to Matt Millen talk about football.

 

[TigerVols]

The Greenspan quote was very, very surprising. Perhaps the most surprising thing about it is:

WHY THE HELL WASN'T IT REBROADCAST ON EVERY NEWSCAST THE NIGHT HE SAID IT?

Why should a PBS documentary uncover the clip months after he said it in a Congressional hearing...seems to me it should have been more widely acknowledged.

 

[zagoshe]

This thread is extremely close to being about the forbidden subject around here.

 

[Twoback]

The Greenspan quote was very, very surprising. Perhaps the most surprising thing about it is:

WHY THE HELL WASN'T IT REBROADCAST ON EVERY NEWSCAST THE NIGHT HE SAID IT?

Why should a PBS documentary uncover the clip months after he said it in a Congressional hearing...seems to me it should have been more widely acknowledged.

That quote was pretty widely distributed.

 

[Football_Bat]

This thread is extremely close to being about the forbidden subject around here.

That forbidden subject has to be weather.

Because Greenie pissed on everyone's leg and told us it was raining. And the media ate it up because in Greenie they trust.

 

[dog428]

An incredible, INCREDIBLE, piece of journalism documenting how Alan Greenspan tore down the walls regulating derivatives and led to the greatest financial meltdown in the history of the world.

http://www.pbs.org/wgbh/pages/frontline/warning/

Edit to add Congressional testimony shown from Greenspan given on October 23, 2008:

Rep. Henry Waxman: "You have been a staunch advocate for letting markets regulate themselves, and my question for you is simple. Were you wrong?"

Greenspan: "Yes, I found a flaw.. but I've been very distressed by that fact."

Waxman: "You found a flaw in the reality -- ?"

Greenspan: "-- a flaw in the model that I perceive is the critical functioning structure that defines how the world works, so to speak."

Waxman: "In other words, you found that your view of the world, your ideology, was not right?"

Greenspan: "Precisely. That's precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well."

WOW!

Is this the same testimony in which he said the flaw in his thinking was that he never imagined the majority of financial institutions wouldn't protect their money? Because if so, I can't say that I blame Greenie.

I mean, we can all look back now and see how **** went awry, but the critical flaw was that banks were handing out loans to people they KNEW couldn't repay them. I'm guessing if you're an economist with the experience of Greenspan, it's hard for you to imagine a scenario in which respectable financial institutions would completely ignore the most basic rules of lending and ethics. Maybe you could imagine that one or two would, but to the degree that got us into this mess? It's essentially the same as 90 percent of the NFL all of a sudden operating like the Raiders.

I'll admit right up front that most of this **** makes my head spin and I don't have even an elementary understanding of some of the more complex actions that led to this mess, but from what little understanding I have, blaming this mess on anyone other than the people involved is just looking for a scapegoat. These people made incredibly stupid moves, ignored their most basic rules and probably committed fraud in many cases. I have a tough time blaming that on Greenspan, Bush, Clinton, Congress, the SEC or anyone other than the greedy ****s responsible.

 

[Bob Cook]

It's like the whole idea of what makes a "rational" economic decision. Greenspan's assumption of rational actors did not adjust for the changing definition of rational. When banks made money hand over fist giving loans to anything bipedal and selling those loans off to someone else, it was completely rational for banks to give loans to anything bipedal, even if now that looks like a horribly irrational thing to do.

 

[Stoney]

Is this the same testimony in which he said the flaw in his thinking was that he never imagined the majority of financial institutions wouldn't protect their money? Because if so, I can't say that I blame Greenie.

Did you bother to actually watch the documentary? It's online, I highly recommend doing so. Because, as it shows, the "Greenie" philosophical flaw was not just that, it was also that his ideological worship of unregulated markets led him to believe that even Wall Street's shysters, fraudsters and criminals should be free from Govt enforcement/interference based on some inherently flawed belief that the free market would somehow deal with them in it's own way. Witness this recounted lunch conversation between Greenspan and Born:

Greenspan: Well, Brooksley, we’re never going to agree on fraud.
Born: What do you mean?
Greenspan: You probably think there should be rules against it.
Born: Well, yes I do.
Greenspan: Well I think the market will figure it out and take care of the fraudsters.

That sounds shocking and it ain't on tape but, frankly, it's fairly consistent with the ideological views of Greenspan going all the way back to the days when he studied with and became a disciple of Ayn Rand as a youngster.

I mean, we can all look back now and see how **** went awry, but the critical flaw was that banks were handing out loans to people they KNEW couldn't repay them. I'm guessing if you're an economist with the experience of Greenspan, it's hard for you to imagine a scenario in which respectable financial institutions would completely ignore the most basic rules of lending and ethics.

I disagree. It might be hard to imagine that the average Joe on the street would understand how these people could've acted this way, but an "an economist with the experience of Greenspan" certainly should've understood it as a possiblilty.

Because what your analysis misses is that the folks handing out the loans were often NOT the ones suffering the losses when those borrowers failed to pay, and they WERE acting in their short term financial interests at the time. The loans were being quickly sold off to Wall Street where they were sliced and diced into a million pieces and hidden in packaged investments that were sold off to unsuspecting suckers who didn't understand what they were buying. The perpetrators were making out like bandits in the short term, and they didn't care if the loans were bad because they knew they'd have already cashed out and passed the bad debt down the road before the default.

Maybe you or I could never have foreseen a scheme like that developing. But to someone as shrewd and experienced as Greenspan, who's presumably seen every Wall Street trick in the book over the last half century, it absolutely should've been well within the realm of imaginability.

I will give Greenspan credit for now admitting that he was wrong, but he is still a wildly overrated figure and deserves far more blame for our economy's meltdown than he's recieved.

 

[Twoback]

It's like the whole idea of what makes a "rational" economic decision. Greenspan's assumption of rational actors did not adjust for the changing definition of rational. When banks made money hand over fist giving loans to anything bipedal and selling those loans off to someone else, it was completely rational for banks to give loans to anything bipedal, even if now that looks like a horribly irrational thing to do.

Yes, but it wasn't really the willingness of the banks to loan the money. It was the recklessness of the investment banks and their like in securitizing those loans and insuring against the securitization. The idea that one could write what amounted to an insurance policy without having the means to pay a claim is hard to fathom -- and that the government allowed that thing to go on is derliction of duty.
And I agree with Stoney on Greenspan.
As I said, the "Matt Millen of the economy."
I'm a freemarket capitalist, but I want people to have an easier time selling legitimate goods and services, not made-up gambling devices whose downside is to wreck entire countries.

 

[slytiger]

If you guys have a chance pick up Bailout Nation by Barry Ritholtz. The book is probably the most in-depth piece I've read about the causes of the financial collapse.

 

[mcgovern72]

No worries.
I'm sure Andrea Mitchell and NBC will provide the real story.

 

[Stitch]

Problem with the free market is that I'm not free to throw a fraudster into a wood chipper Fargo-style.