Former Fed chairman Alan Greenspan, who was questioned by members of congress yesterday about his role in the economy’s breakdown, put another nail in Adam Smith's coffin, admitting that it was a mistake to presume that “the self-interest of organizations, specifically banks and others, was such that they were best capable of protecting their own shareholders.”
During the 18 years Greenspan was the country’s central banker, he fervently opposed regulation. Now, he admits the industry needs more oversight.
I am a firm a believer in the free market, and regulation can certainly be taken to painful extremes, but the subprime mortgage derivatives market was questionable from the start. Greenspan's current position, that corporations packaging derivatives be required to hold some of them in their own portfolios, can be filed under the heading "too little, too late.
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