Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Greenspan Could Have Prevented the Current Financial Meltdown
Old 10-12-2008, 10:16 AM   #1
Full time employment: Posting here.
Retire Soon's Avatar
 
Join Date: Nov 2005
Posts: 655
Greenspan Could Have Prevented the Current Financial Meltdown

George Soros once said that he avoided using derivatives, "because we really don't understand how they work." Warren Buffets believed that derivatives were, "financial weapons of mass destruction." Felix Rohatyn, who been given credit for saving New York from financial ruin in the 70's described these financial contracts as, "hydrogen bombs."

On the other hand, Alan Greenspan had a completely opposing view and fought fiercely for continued use of derivatives. In 1997, The Commodity Futures Trading Commission began looking into the regulation of derivavtives and believed that this type of opaque trading could seriously threaten our economy unless their were both greater disclosure of trades and reserves.

The views of the Futures Trading Commission were sharply contested by Greenspan and then Treasury Secretary, Robert Rubin. These two individuals along with Arthur Levitt convinced congress to avoid listening to the views of this commission until, "other regulators developed their own recommendations."



Shortly thereafter, hedge fund, Long Term Capital Management nearly collapsed. Congress then stripped the Futures Trading Commission's regulatory authority for six months. In 1999, Greenspan and Rubin recommended to congress that the CFTC be permanently stripped of its authority to regulate derivatives.

As the global economy increasingly becomes worse, because of the housing crisis and lack of credit availability, derivative now magnify the problem. The derivatives market is now an astounding $531 trillion, up from $106 trillion in 2002.

According to an article in the New York Times, today's financial crisis could have been, "muted or prevented" if Greenspan had acted differently during his tenure as Federal Reserve Chairman from 1987 to 2006. It's no wonder that Mr. Greenspan has seldom accepted invitations for speaking engagements over the past several months.

http://www.nytimes.com/2008/10/09/bu...se&oref=slogin
__________________

__________________
"I went to the woods because I wished to live deliberately... and not, when I came to die, discover that I had not lived."

--Henry David Thoreau
Retire Soon is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-12-2008, 10:28 AM   #2
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,074
I've been telling you it was all Alan Greenspan's fault...

Will the FED cut rates now?
__________________

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 10-12-2008, 10:49 AM   #3
Full time employment: Posting here.
 
Join Date: Nov 2005
Posts: 826
Another quote from Mr. Morris' book ( see this thread: book recommendation )

Quote:
It may be worth noting that as the [British Financial Services Authority] was completing its report [in 2006], Alan Greenspan was still singing the praises of the new credit technologies for their role in "lay[ing] off all the risk of highly leveraged institutions - and that's what banks are, highly leveraged institutions - on stable American and international institutions." CDOs and credit hedge funds apparently now count as "stable American and international institutions."
It would be ridiculous to isolate Greenspan as the sole cause of the meltdown. However, there's no doubt that if he had been wired differently, maybe we would have had a soft landing rather than a hard landing.
__________________
socca is offline   Reply With Quote
Old 10-12-2008, 12:16 PM   #4
Full time employment: Posting here.
 
Join Date: Oct 2002
Posts: 717
When Greenspan uttered his famous "irrational exuberance" phrase in late 1996 the DOW was at 6400. Had he followed through with policy, rather than empty sound bites, we might not be threated with revisiting 6400 on the DOW.
__________________
Random Reinforcement is Highly Addictive.
riskadverse is offline   Reply With Quote
Old 10-12-2008, 01:06 PM   #5
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
As I've said before -- Greenspan may have loaded the gun, but someone else had to grab it, hold it to their head and pull the trigger.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 10-12-2008, 02:42 PM   #6
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,074
Quote:
Originally Posted by ziggy29 View Post
As I've said before -- Greenspan may have loaded the gun, but someone else had to grab it, hold it to their head and pull the trigger.
While Greenspan cheered them on:

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.”

– Alan Greenspan, former Federal Reserve chairman, 2004
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
"How the world's markets came to the brink of collapse"
Old 10-15-2008, 10:38 AM   #7
Full time employment: Posting here.
Retire Soon's Avatar
 
Join Date: Nov 2005
Posts: 655
"How the world's markets came to the brink of collapse"

The Washington Post corroborates the story in the New York Times about Alan Greenspan's successful role in blocking federal regulation of the derivatives market with an investigation of its own. There are currently $530 trillion invested globally in derivatives. To make sense of this number, consider that the total value of the New York Stock Exchange was $30 trillion at the end of 2007, before the recent crash.

What Went Wrong - washingtonpost.com=

Edit: oops! Original story was from the New York Times
__________________
"I went to the woods because I wished to live deliberately... and not, when I came to die, discover that I had not lived."

--Henry David Thoreau
Retire Soon is offline   Reply With Quote
Old 10-15-2008, 11:38 AM   #8
Thinks s/he gets paid by the post
Helen's Avatar
 
Join Date: Oct 2004
Location: Portland
Posts: 1,339
Interesting article, Retire Soon.

Here is more on Brooksley Born:

Legends in the Law: Brooksley Born
__________________
Helen is offline   Reply With Quote
Old 10-15-2008, 11:40 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by Retire Soon View Post
George Soros once said that he avoided using derivatives, "because we really don't understand how they work." Warren Buffets believed that derivatives were, "financial weapons of mass destruction." Felix Rohatyn, who been given credit for saving New York from financial ruin in the 70's described these financial contracts as, "hydrogen bombs."

On the other hand, Alan Greenspan had a completely opposing view and fought fiercely for continued use of derivatives. In 1997, The Commodity Futures Trading Commission began looking into the regulation of derivavtives and believed that this type of opaque trading could seriously threaten our economy unless their were both greater disclosure of trades and reserves.

The views of the Futures Trading Commission were sharply contested by Greenspan and then Treasury Secretary, Robert Rubin. These two individuals along with Arthur Levitt convinced congress to avoid listening to the views of this commission until, "other regulators developed their own recommendations."



Shortly thereafter, hedge fund, Long Term Capital Management nearly collapsed. Congress then stripped the Futures Trading Commission's regulatory authority for six months. In 1999, Greenspan and Rubin recommended to congress that the CFTC be permanently stripped of its authority to regulate derivatives.

As the global economy increasingly becomes worse, because of the housing crisis and lack of credit availability, derivative now magnify the problem. The derivatives market is now an astounding $531 trillion, up from $106 trillion in 2002.

According to an article in the New York Times, today's financial crisis could have been, "muted or prevented" if Greenspan had acted differently during his tenure as Federal Reserve Chairman from 1987 to 2006. It's no wonder that Mr. Greenspan has seldom accepted invitations for speaking engagements over the past several months.

http://www.nytimes.com/2008/10/09/bu...se&oref=slogin
Isn't Greenspan a Democrat? Seems unlikely for the NYT to throw him under the bus........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 10-15-2008, 11:43 AM   #10
Thinks s/he gets paid by the post
Helen's Avatar
 
Join Date: Oct 2004
Location: Portland
Posts: 1,339
Here's more from Born from Oct. 15, 1998:

In conclusion, there is an immediate and pressing need to address possible regulatory protections in the OTC derivatives market. The LTCM episode not only has demonstrated the potential risks posed by the OTC derivatives market for the domestic and global economy, but also has highlighted the importance of the safeguards in place for exchange-traded futures and options. Obviously, regulation must be adapted to the particular marketplace and must address the risks to the public interest that that market poses. Thus, regulatory solutions for exchanges are not necessarily appropriate for the OTC market. Nonetheless, the markets involve similar instruments and pose many of the same risks, and our successful experience with the U.S. futures exchanges will be invaluable in the study of the OTC derivatives market.

Remarks of Chairperson Brooksley Born on "The Lessons of Long-Term Capital Management L.P," at the Chicago Kent-IIT Commodities Law Institute on October 15, 1998
__________________
Helen is offline   Reply With Quote
Old 10-15-2008, 12:35 PM   #11
Thinks s/he gets paid by the post
Rustic23's Avatar
 
Join Date: Dec 2005
Location: Lake Livingston, Tx
Posts: 3,624
Greenspan? Bush? Clinton? Volker? Franks? Dodd? Democrats? Republicans?

I don't care who, I care WHY! And, I don't think there is a politician in power or about to be in power that will truthfully seek the answer.
__________________
Rustic23 is offline   Reply With Quote
Old 10-15-2008, 01:20 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,456
Quote:
Originally Posted by FinanceDude View Post
Isn't Greenspan a Democrat? Seems unlikely for the NYT to throw him under the bus........
NO - Greenspan was a longtime Libertarian until he became a Republican.

Audrey
__________________
audreyh1 is offline   Reply With Quote
Old 10-23-2008, 12:26 PM   #13
Full time employment: Posting here.
Retire Soon's Avatar
 
Join Date: Nov 2005
Posts: 655
Alan Greenspan admitted today that he had made some mistakes in opposing regulations on mortgage securities while he was Federal Reserve Chairman:

Greenspan Admits Some Mistakes Amid Grilling by House Lawmakers - WSJ.com
__________________
"I went to the woods because I wished to live deliberately... and not, when I came to die, discover that I had not lived."

--Henry David Thoreau
Retire Soon is offline   Reply With Quote
Old 10-22-2009, 11:04 PM   #14
Thinks s/he gets paid by the post
Helen's Avatar
 
Join Date: Oct 2004
Location: Portland
Posts: 1,339
This is really worth watching:

FRONTLINE: the warning: watch the full program online | PBS

"In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008."
__________________
Helen is offline   Reply With Quote
Old 10-23-2009, 11:05 AM   #15
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,812
I'll agree that Greenspan killing the CFTC proposal on derivatives had a big impact on the current meltdown.

But let's be clear that the issue was bigger then derivatives and there were a lot more players than Greenspan. The post article goes on to talk about this meeting:

Quote:
Agency’s ’04 Rule Let Banks Pile Up New Debt ... In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms’ own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves.
The New York Times > Log In (Sorry the link requires free registration).

I think that gov't ought to protect the public interest in cases where private interests can generate big negative externalities. The dominant ideology in Manhattan/DC has been that there are no such cases. This allows financial firms to make big profits while offloading the losses to the public. It appears to me that the current Congress will do some grandstanding on executive pay, but it will be business-as-usual in all the important areas.
__________________
Independent is offline   Reply With Quote
Old 10-23-2009, 11:56 AM   #16
Thinks s/he gets paid by the post
charlie's Avatar
 
Join Date: Mar 2004
Location: Dallas
Posts: 1,211
Derivatives were just part of the problem. Toxic assets are the root
cause and they resulted from greed by lenders and buyers inspired
by bad policy from congress and the lack of effective oversignt by
the regulators.

Cheers,

charlie
__________________
charlie is offline   Reply With Quote
Old 10-23-2009, 12:30 PM   #17
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Greenspan is really a "Quant" at heart. He loves math and fell in love with derivatives. He really thought they had a product that took the risk out of almost all securities. What he forgot was human nature and greed.

Greenspan has admitted in pubic he was wrong. Larry Somers, Robert Rubin, Chris Dodd, Barney Frank and Bill Clinton have yet to admit their part.

I thought the "Frontline" program mentioned in a previuos post sheds light on what happened in late the 90's. Very interesting. At the end Brooksley Born issues a chilling warning.
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Old 10-23-2009, 03:06 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,456
Well, he admitted it himself. He admitted that his model was wrong. He said he never imagined corporate officers/CEOs would screw their shareholders and take short term risks to line their own pockets ignoring how long term consequences might really hurt their shareholders.

Well, that was one expensive lesson! For everybody! (except for the folks who got theirs and got out already!)

Audrey
__________________
audreyh1 is offline   Reply With Quote
Old 10-23-2009, 03:09 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,456
Quote:
Originally Posted by Bikerdude View Post
Greenspan has admitted in pubic he was wrong. Larry Somers, Robert Rubin, Chris Dodd, Barney Frank and Bill Clinton have yet to admit their part.
Pretty funny you would list them and not mention Phil Gramm!! - the mastermind behind modern bank deregulation and protector of unfettered use of derivatives.

And what's with the list of administration officials from the 1990s? The 2000-2008 administration officials must not have had any culpability whatsoever I guess - not the SEC Chairman, or Treasury Secretary or President. Must have just been all those democrats from the previous administration that caused a 2008 financial crisis. Yeah, right!

Audrey
__________________
audreyh1 is offline   Reply With Quote
Old 10-23-2009, 04:01 PM   #20
Thinks s/he gets paid by the post
Bikerdude's Avatar
 
Join Date: Jul 2006
Posts: 1,901
Quote:
Originally Posted by audreyh1 View Post
Pretty funny you would list them and not mention Phil Gramm!! - the mastermind behind modern bank deregulation and protector of unfettered use of derivatives.

And what's with the list of administration officials from the 1990s? The 2000-2008 administration officials must not have had any culpability whatsoever I guess - not the SEC Chairman, or Treasury Secretary or President. Must have just been all those democrats from the previous administration that caused a 2008 financial crisis. Yeah, right!

Audrey
I was just pointing out some of the key characters in the "Frontline" piece. According to Frontline in the late 90's (Bush wasn't President yet) Brooksley Born wanted to regulate the derivative market and most of the cast of characters mentioned ran her out of Washington on a rail. It is what it is. They were all aware and chose to do nothing.
__________________

__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
Bikerdude is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
An honest assesment of the subprime Meltdown. armor99 Young Dreamers 4 02-20-2008 12:42 PM
Dollar and Dow meltdown hedge nun Stock Picking and Market Strategy 19 11-03-2007 07:54 PM
Jim Cramer meltdown - hilarious!!! wildcat Other topics 38 08-25-2007 04:56 AM
Market meltdown? W2R FIRE and Money 7 08-24-2007 04:38 PM
Advice on Current Financial Situation (Novice) yamasho Young Dreamers 20 06-15-2007 08:58 AM

 

 
All times are GMT -6. The time now is 02:38 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.