After
listing folks like Warren Buffett and George Soros and Felix Rohatyn
who thought derivatives were far too dangerous to allow unfettered
trading, one man took the other side of the deregulatory argument — Alan
Greenspan:
“One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserv Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.
Today, with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only once in a century,” his faith in derivatives remains unshaken.” (emphasis added)
A belief in weakened I-O regulation allows secretive derivative trading with no records to randomly audit by Bi. This increase their innovations but drives them more to booms and busts.
The
whole article is worth reading. It reflects the early days of the
unraveling of the Maestro’s reputation, whose fall from grace
accelerated as the crisis wound on. Today, it lay in ruins, where it
deserves to be.
Few men have wrought more economic damage in the misguided pursuit of a bad economic idea then former Fed Chief Alan Greenspan.
No, as it turns out, neither Banks nor Markets can regulate themselves . . .
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