Thursday, October 23, 2008

Greenspan's Mea Culpa

Model of Imperfection: For the 18 years he served as chairman of the Federal Reserve, politicians and investors hung on every word uttered by Alan Greenspan. He was lord of the economy. He was a genius. He kept inflationary spirals under control. His utterances excited the stock exchanges. Now in retirement and testifying before Congress, Greenspan said he screwed up by failing to acknowledge the greed and avarice of the nation's money managers. It was a fundamental flaw in his model that the private sector of the financial markets would act responsibly. Hell, anyone who watched Oliver Stone's movie "Wall Street" knows that. As Fed chairman, Greenspan opposed regulations on how home mortgages are packaged into larger and more complex securities, the central corp of the current financial meltdown. As a result, Greenspan told the House Government Oversight Committee Thursday the United States is heading for a "significant rise in layoffs and unemployment" and a continued downturn in home prices that is "broader than anything I could have imagined." Calling the current crises a "once in a lifetime credit tsunami," Greenspan said he remained in a state of "shock and disbelief" that banks and credit firms did not do a better job of analyzing the risks involved in home loans at subprime rates extended to less than creditworthy borrowers. Greenspan as Fed chairman oversaw a period of low interest rates that inadvertently encouraged loose lending practices. He told Congress his model assumption was that sophisticated analysts of banks, investment firms and hedge funds would properly account for the risks involved and price the investments accordingly. They didn't and sold the packaged assets on the world market for profiteering. "There are additional regulatory changes that this breakdown of the central pillar of competitive markets require in order to return to stability," he said. The problem with geniuses is they lack a basic understanding of human behavior. Greenspan should have listened to the fictional Gordon Glecko: Greed is good.

Equal Protection: California's Proposition 8 ballot measure on Nov. 4 would ban same-sex marriages. The state Supreme Court legalized same-sex marriages in May, ruling the constitutional ban decided by voters in 2000 violated equal protection rights to gays and lesbians afforded to heterosexual couples. Would you believe opposing campaigns have spent more than $53 million promoting their arguments? The spending is about evenly split. I know many fathers who would kill for a tiny fraction of that dough they fork out on their daughter's wedding. The question boils down to this: Are you really threatened by a same-sex married couple? For straights, it may be repulsive to their sensibilities and religious scruples but nothing else. Really. That is not a reason for discrimination as it wouldn't be for neighbors whether they are black, Muslim, Asian, Filipino or Jews. When the issue is equal protection, the majority loses its right to impose its views on the minority. If you don't like it, ignore them. Recommendation: No on Prop. 8.

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