CNBC: Greenspan "I Was Sorta Kinda Wrong"

Greenspan admits error. Shocking. Self regulation does not work. Shocking. Here is why Mr Greenspan - it goes back to our "heads we win, tails we win" executive compensation system. [Oct 4: Credit Crisis Sharpens Anger over CEO Pay] Who cares about risk when you retire with generational wealth whether you destroy a company or not. Why we are of the belief that the rank and file peons in a company must excel or at least be competent to keep a job and get pay raises, but at the very top echelon one must get extreme compensation even if the job done is a complete disaster (some get paid more in getting fired than staying on!) is beyond me - the best selling job ever done. (aside from that whole bottled water thing) Why one set of rules for 99.9% of people, and another set of rules for the top 0.1% in a company - again, beyond me.

But we can't police compensation (how socialistic) at the top, because the board is doing a great job of self regulation; boards usually headed by... the CEO. Yep.

• Former Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is "shocked" at the breakdown in U.S. credit markets and said he was "partially" wrong to resist regulation of some securities.
• Despite concerns he had in 2005 that risks were being underestimated by investors, "this crisis, however, has turned out to be much broader than anything I could have imagined," Greenspan said to the House of Representatives Committee on Oversight and Government Reform.
• "Those 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," said Greenspan, who stepped down from the Fed in 2006. Mr. Greenspan told the House Oversight Committee on Thursday that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had proved to be wrong. Mr. Greenspan said he had made a “mistake” in believing that banks operating in their self-interest would be enough to protect their shareholders and the equity in their institutions. (the self interest of the company does NOT come before the self interest of the individual human - we are self serving greedy by DNA - self preservation and all - survival of the fittest - acquire the most wealth and resources - blah blah)
• “Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment,” Mr. Greenspan said. “Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity.” (thanks for the news flash)
• At the heart of the breakdown of credit markets was the securitization system that stimulated appetite for loans made to borrowers with spotty credit histories, Greenspan said. Without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of crisis) would have been far smaller and defaults accordingly far fewer," he said. (and where did all that easy money come from?)
  
• "The consequent surge in global demand for U.S. subprime securities by banks, hedge and pension funds supported by unrealistically positive rating designations by credit agencies was, in my judgment, the core of the problem," he added. (the credit agency disaster was the topic de jour yeserday on the Hill - those folks are also a complete disaster. Imagine that - companies who are paid to rate debt, and the money for services rendered comes from the people who issue the debt - no conflict of interest there)
• Greenspan urged that securitizers be required to retain "a meaningful part" of securities they issued. (finally a good idea - when you have to actually partake in the junk you sell - you actually will give a darn. A 5% stake in every loan would of stopped this in its tracks - but that's REGULATION and regulation is evil - it stifles innovation - or so we were sold year after year)
• He also conceded he was "partially wrong" about his belief that certain derivatives, such as credit default swaps, did not need to be regulated. (wonder what it would take to be "completely wrong")

So once again for those not keeping track, the solution for regulators (esp. the Federal Reserve) especially those steeped in ideologically against regulation, and being asleep at the wheel is.... give more power to the Federal Reserve. Logical. Very.

Heckavu job Greenie!