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Old 10-23-2008, 10:47 PM   #21
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There's nothing wrong with the free market approach. The problems arose because when the government allowed banks to give credit to whoever they want to they also guaranteed a return on that money because Freddie and Fanny bought up half of the mortgages in the united states. It basically removed any negative results from affecting the primary lender if the homeowner decided not to pay; because by that time they have already sold off the loan to F&F.

Freemarket Capitalism requires two things, freedom from restrictions and responsibility for actions. The very idea of corporate personhood is very anti-free market because no person is responsible for the mistakes a company makes, only the company name is responsible. All the CEOs and Board of Directors just take their millions of dollars and go find another job.
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Old 10-24-2008, 09:02 AM   #22
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Gosh I forgot who selected Greenspan. Anyone jog my memory for me?:confused:
I assumed you were joking but for those who forgot it was Reagan. To be fair, everyone who followed Reagan was afraid to get rid of Greenspan. We all walked into this mess like lemmings.
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Old 10-24-2008, 09:07 AM   #23
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It is amazing -- just a few short years ago he was so highly respected and trusted. Almost financial god status.

We're fickle.

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Old 10-24-2008, 09:12 AM   #24
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It is amazing -- just a few short years ago he was so highly respected and trusted. Almost financial god status.

We're fickle.

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Fickle implies that we flit about without much basis. It took a lot to turn us around on Greenspan. I think we are trusting, not fickle. But when the trust is abused we get PO'd - witness our reactions to Cheney's intelligence cherry picking about WMDs and Greenspan's "shock" about financial institutions.
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Old 10-24-2008, 09:48 AM   #25
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Like virtually any other bureaucrat or politician one sees on TV, Greenspan is lying.
Unfortunately, I think he is telling the truth.
When he was lecturing on the virtues of less regulation, he really believed what he was saying.
When he says that he is "shocked" that he was wrong, he is also telling the truth.

The lesson is that even honest ideologues, who can't see the limits on their ideologies, are going to be wrong.
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Old 10-24-2008, 10:05 AM   #26
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The lesson is that even honest ideologues, who can't see the limits on their ideologies, are going to be wrong.
Absolutely! Very well said.

Greenspan was shocked, because his most strongly held belief, that financial companies would self-police, was proven wrong.

I think you can definitely say that Greenspan was incredibly naive. Unforunately, naivety is not a good characteristic for someone assigned to oversee financial markets.

You'd think that the LTCM rescue would have been a clear enough warning shot. But - unfortunately - not!

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Old 10-24-2008, 11:25 AM   #27
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What I don't understand is why is Greenspan so surprised that GREED exists?

Isn't greed a human nature? That is why we need to have rules and regulations to prevent greedy CEOs from stealing, cheating and lying to the stock holders.

Why is it so tough understand?
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Old 10-24-2008, 11:44 AM   #28
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What was completely forgotten about the lessons of unfettered capitalism is that ultimately greed trumps prudence.

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Very well said. Idealism of any type, not tempered by healthy skepticism and an understanding of basic human nature, will usually lead to bad results. That applies to both ends of the ideological spectrum.
FOA, thanks for answering this so well. I added the bold to what I see as key:

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There's nothing wrong with the free market approach. The problems arose because when the government allowed banks to give credit to whoever they want to they also guaranteed a return on that money because Freddie and Fanny bought up half of the mortgages in the united states. It basically removed any negative results from affecting the primary lender if the homeowner decided not to pay; because by that time they have already sold off the loan to F&F.

Freemarket Capitalism requires two things, freedom from restrictions and responsibility for actions. The very idea of corporate personhood is very anti-free market because no person is responsible for the mistakes a company makes, only the company name is responsible. All the CEOs and Board of Directors just take their millions of dollars and go find another job.
I'll put another spin on it also. Greed is a constant. It has always been around, and always will be around. Capitalism keeps greed in check just fine, or it never would have worked at all. It is competition in the free market that keeps greed in check, and the reason that a simple wooden pencil does not cost $50. Because that is what greedy people would charge. But they can't get it in a free market. So they don't. But they would if they could. You would too ("you" meaning just about everybody).

Two areas requiring regulation: "Tragedy of the Commons" areas, and areas of poor transparency. I prefer that steps be taken to increase the transparency first. If the market is not free, steps maybe need to be taken to try to make it free. IMO, that would be far better than trying to regulate it.

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Old 10-24-2008, 11:49 AM   #29
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What I don't understand is why is Greenspan so surprised that GREED exists?

Isn't greed a human nature? That is why we need to have rules and regulations to prevent greedy CEOs from stealing, cheating and lying to the stock holders.

Why is it so tough understand?
So explain to me why simple pencils are not $50. The #2 pencil market is not regulated.

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Old 10-24-2008, 02:03 PM   #30
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Cause if you were selling it for $50, I'd sell it for $49. Someone else would sell it for $48, and so on, until we reached the lowest selling price that someone could manufacture it for.
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Old 10-24-2008, 03:08 PM   #31
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Cause if you were selling it for $50, I'd sell it for $49. Someone else would sell it for $48, and so on, until we reached the lowest selling price that someone could manufacture it for.
Unfortunately competition amongst businesses is not a problem. The real problem here is a CEO sold only 10 #2 pencils but he cooked the book and show investors that he sold 1000 pencils instead.

We need to promote true competions but we also need to make sure that competition is fair and balance.
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Old 10-24-2008, 03:18 PM   #32
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Two areas requiring regulation: "Tragedy of the Commons" areas, and areas of poor transparency. I prefer that steps be taken to increase the transparency first. If the market is not free, steps maybe need to be taken to try to make it free. IMO, that would be far better than trying to regulate it.
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Let me try to see if I understand your terms. I'll use a non-financial firm.
Suppose a chemical company is building a plant. They understand that an accident at the plant could cause $100 million in damage to equipment, lost business, and workers' comp claims. They've given the CEO two options to improve plant safety. They can do either, both, or neither.
Option A reduces the chance of a $100 million accident by 1%. Option A costs $1 million.
Option B reduces the chance of a $100 million accident by another 1%. Option B costs $10 million.

If the CEO is only concerned about his own bonus, and doesn't care about the shareholders, he might do neither. This increases today's bottom line. If an accident occurs, it may be after he retires. Or, even if he is blamed, he still leaves with his golden parachute. Is this a "transparency" problem?

If the CEO also cares about the stockholders, he will do A but not B. The expected value of both is $1 million in reduced losses, but B costs $10 million.

However, the plant is located in a populated area. An accident will do $100 million damage to the chemical company, but $1 billion damage to the neighbors. Maybe the plant is located in a country where the neighbors can't sue the company, or the company financially walls off just this plant from its other operations. Now, the CEO will approve both A and B if he is concerned about the neighbors as well as the stockholders. If he doesn't care about the neighbors, he doesn't do B. Is this a "tragedy of the commons" problem?
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Old 10-24-2008, 04:42 PM   #33
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It is amazing -- just a few short years ago he was so highly respected and trusted. Almost financial god status.

We're fickle.

Coach

We're stupid.
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Old 10-24-2008, 04:42 PM   #34
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Unfortunately competition amongst businesses is not a problem. The real problem here is a CEO sold only 10 #2 pencils but he cooked the book and show investors that he sold 1000 pencils instead.

We need to promote true competions but we also need to make sure that competition is fair and balance.
Well, cooking the books is already against the law. So why would *another* law improve things?

I think FoA captured the real problem quite well in the post I quoted earlier. I'll bold the line, and add "<single> for a bit of added clarity (IMO):

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The very idea of corporate personhood is very anti-free market because no <single> person is responsible for the mistakes a company makes, only the company name is responsible. All the CEOs and Board of Directors just take their millions of dollars and go find another job.


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Let me try to see if I understand your terms. I'll use a non-financial firm.
Suppose a chemical company is building a plant. They understand that an accident at the plant could cause $100 million in damage to equipment, lost business, and workers' comp claims. They've given the CEO two options to improve plant safety. They can do either, both, or neither.
Option A reduces the chance of a $100 million accident by 1%. Option A costs $1 million.
Option B reduces the chance of a $100 million accident by another 1%. Option B costs $10 million.

If the CEO is only concerned about his own bonus, and doesn't care about the shareholders, he might do neither. This increases today's bottom line. If an accident occurs, it may be after he retires. Or, even if he is blamed, he still leaves with his golden parachute. Is this a "transparency" problem?

If the CEO also cares about the stockholders, he will do A but not B. The expected value of both is $1 million in reduced losses, but B costs $10 million.

However, the plant is located in a populated area. An accident will do $100 million damage to the chemical company, but $1 billion damage to the neighbors. Maybe the plant is located in a country where the neighbors can't sue the company, or the company financially walls off just this plant from its other operations. Now, the CEO will approve both A and B if he is concerned about the neighbors as well as the stockholders. If he doesn't care about the neighbors, he doesn't do B. Is this a "tragedy of the commons" problem?
Well, I think FoA's comments apply here as well. The CEO really can take a short term view, and that may mean gambling on long term risks. Not good. BTW, I do think that something is wrong with the current CEO/BOD relationship in many companies. I don't think it is as free a market as it could/should be.

I'm not certain this situation fits the "Tragedy of the Commons" exactly, it might - I'd need to read up a bit more. I think it can be viewed that way - as the neighborhood is a "common area", but the company does not have to pay the neighbors for the risk that they are being put in, so it does seem to fit that description of " take what you need, it's free to all". So at least, transparency is needed, the company has to be forced to produce records that describe the dangers and what they are doing to contain them.

Now IMO, if an industry is smart - they will set up their own standards. If companies meet those standards (and are audited if needed) they get to show that with a certificate of some sort. And, if the industry runs that program effectively, the public is happy, and they can totally avoid govt intervention. If they don't, then they are going to get govt involvement. What's best - do your own policing, in a manner that probably will be more effective and less bureaucratic than what the govt would do, or "contract out" that job to the govt.

Come to think of it, many shareholders are more interested in the long term health of a company than the CEOs, who may only be there a few years. Kinda funny, ain't it?

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Old 10-24-2008, 04:50 PM   #35
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It is amazing -- just a few short years ago he was so highly respected and trusted. Almost financial god status.

We're fickle.

Coach
I was not smart enough at the time (or now), to know whether he was doing the right thing at the time, overall. One thing DID stand out, and it bothered me. He spoke of "irrational exuberance", yet, he kept margin requirements at 50% instead of raising them (slowly, maybe even grandfathering current positions).

That seemed inconsistent to me, and it made me wonder about the guy.

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Old 10-24-2008, 05:00 PM   #36
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It is amazing -- just a few short years ago he was so highly respected and trusted. Almost financial god status.

We're fickle.
I would imagine that a lot of people are very angry about this economic collapse, and are looking for a whipping boy.

Greenspan, being in his 80's, obligingly stepped right up to the plate. I don't think he's such a demon and I still respect and trust the man. Boy, is that an un-PC thing to say right now!
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Old 10-24-2008, 05:01 PM   #37
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Absolutely! Very well said.

Greenspan was shocked, because his most strongly held belief, that financial companies would self-police, was proven wrong.

I think you can definitely say that Greenspan was incredibly naive. Unforunately, naivety is not a good characteristic for someone assigned to oversee financial markets.

You'd think that the LTCM rescue would have been a clear enough warning shot. But - unfortunately - not!
Audrey
Audrey, I don't mean this as a personal attack, but YOU and many of the posters on this board are the ones that are naive.

No one makes it to the upper ranks of power in any society by being lambs.
Politics and the accompanying bureaucracy is a dirty, vicious game. Only the clever, connected, and most cut-throat make it to the top. Greenspan believed what he wanted to believe to achieve and hold power and wealth.
He's no idealist, anymore than a Stalin, Hitler, Kennedy or Gandhi was. He is a hardcore, facile realist.

Nice guys have little chance in the major league area that a Fed chairman inhabits. While few people actively want to do evil, many are willing to do it or ignore it in others if that is what is necessary to advance one's own standing.

Alan Greenspan knew exactly what was going on. He still does. Part of his game is to play off of the sympathies of people with honest natures who can't understand his type. He is, as his predecessor was and successor will be, an amoral creature looking out for "chairman number one".

It made him a superstar.

It is making us destitute.

The main stream media was an eager accomplice and is now paying a heavy price.
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Old 10-24-2008, 05:15 PM   #38
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The main stream media was an eager accomplice and is now paying a heavy price.
Certainly not in proportion to the damage they did (through negligence). The worse the news gets, the more people tune in to hear about the latest calamity. When things get still worse, they'll take solace in escapist entertainment from Hollywood. Maybe their ad rates will go down a bit during the recession, but they won't starve.
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Old 10-24-2008, 06:12 PM   #39
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He's no idealist, anymore than a Stalin, Hitler, Kennedy or Gandhi was. He is a hardcore, facile realist.

Alan Greenspan knew exactly what was going on. He still does. Part of his game is to play off of the sympathies of people with honest natures who can't understand his type. He is, as his predecessor was and successor will be, an amoral creature looking out for "chairman number one".
Wow - you really DO believe that he is lying instead of belatedly discovering that companies will not, in fact, self-police!

So you think Greenspan deliberately discouraged Congress/President etc. from reigning in any of the newfangled financial instruments and excessive risk-taking even though he knew companies would use such instruments/risk-taking irresponsibly and ultimately threaten the global financial system?

Was he also lying when he said he now thought more regulation was needed? Why would he lie about that?

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Old 10-24-2008, 06:51 PM   #40
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He had a clear opportunity to lay the blame back on the hearing chairman (Waxman I think) and and his cohorts and clearly blew it. He gave them exactly what they wanted "My mistake" (and without saying it, I will save your a**es from ridicule or worse). What did he have to lose over the truth? He is 82 years old, financially secure, and can go off into the sunset happily, with his "trophy wife".
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