Free market champion admits his ideology wasn’t right

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They got it wrong:

  • the regulators who thought the liberalised financial sector would work just fine by itself, and
  • stock market pundits and the financial media who were giving the public a false sense of security ahead of the crash.

“I was shocked”: Alan Greenspan, a longtime ideological champion of free competitive markets and deregulation, admits under official questioning that his model was distressingly flawed, not right, and not working.

Jon Stewart clashes with a stock market guru

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Kah Seng

Geraint, The dotCom melt down involved equity cash paid up front, burnt away, and paper value evaporated. There was no debt to drag down the economy. The mortgage bubble was real money owed. The Democrats took over the Congress in 2006 and encouraged a ballooning of Freddie Mac and Fannie Mae. Property prices were already high by then. Then poorer families who would not have qualified for home loans at that stage in their lives were encouraged to “buy high.” What else would be the outcome? Remember all the problems and unresolved issue are really home mortgage-related: from toxic debts… Read more »

Geraint

flyer, You are exaggerating by implying Obama and co follow pure Keynesian economics. Krugman may be a strong proponent of Keynesianism but he is also one of the strongest critic of Obama bailouts, albeit from the left. I don’t know what u meant by “unprecedented” and “untried” but I do see Obama is trying something parallel to Rooselvelt’s “New Deal” in today’s parallel environment to the Great Depression. Elizabeth Warren, the head of the US Congressional Oversight Panel stated that “The deregulated free market capitalist system in the US creates a recession in a 10 year cycle. The New Deal… Read more »

Kah Seng

Anil, The US system has been less of a free market in the past 10 years, first, especially when Alan Greenspan bailed out LTCM funds, and others. Second, government intervened heavily in house lending through Freddic Mac and Fannie Mae. This is the source of the financial bubble. Third, Alan Greenspan was a czaar of the financial system, determining the price of money. What free market would have price-deciding wise men on the mountain? With these 3 key interventions in the core of the economy, Alan Greenspan is bound to fail. He had been a free market thinker operating against… Read more »

asianeconomies

Anil is wrong in calling Greenspan a free marketeer. It is already established among serious economists/historians that Alan Greenspan was not a believer in free markets. He was a proponent of market interference (through his own intuitive tinkering of interest rates) which seemed so successful for a decade but proved to be disastrous in the late 1990s and 2001 when fed rates were cut to 1%. This policy and misguided economic thinking that consumption and debt can create sustainable wealth is the main CAUSE of the US credit crisis. When debt was increased to make more profits, the greedy CEOs… Read more »

Bigjoe

Don’t confuse extraordinary happenings with a philosophy here. What has happen is NOT a failure of free markets but rather what sound free-market proponents have always said – free markets are not perfect but it is still the best system out there. The current failure would not have manifest itself if not for fundamentally a political failure that began with George Bush Jr. that deregulated the sub-prime market to revive the economy from a tech-bubble and compounded by over-zealous innovations in the financial markets. If we talk about these kinds of failure, other systems and other countries have failures a… Read more »

Drachen

Expecting the market to know what is best is like expecting people to eat wisely at a buffet dinner.

Phua Kai Lit

Dear Anil and other Fellow Progressive Malaysians It’s the end of the right-wing economics (“free market fundamentalism” as Joseph Stiglitz calls it) that rose to prominence under Thatcher, Reagan and Kohl in the late 1970s. All part of the counter-attack by right-wingers against Keynesian economics and the welfare state (beginning with the book “The Road to Serfdom” by Fredrich von Hayek published in 1944). The right-wing economists formed the Mont Pelerin Society to plot the ultimately successful counter-attack. Milton Friedman was one of these. Please read Naomi Klein’s book “The Shock Doctrine” (chapter two). Right-wing economics and right-wing economic policy-making… Read more »

wira

Basic tenet of capitalism = greed.
There is no capitalism without greed.

flyer168

Dear Anil, Our new government’s decision to liberalise 27 services sub-sectors by removing the 30 per cent Bumiputera quota on equity ownership in health and social services, tourism services, transport, business and computer industry and related services has been widely lauded. That CAN BE very positive if only to “Challenge” all the Malaysian Businesses to “Walk their Talk” with Globalisation on a “Level Playing field”…. To better prepare themselves to face “Global Realities”…. The Ocean of “Big Boys” surrounded by “Man eating Sharks”…. Time has come for all our Bolehland’s “Jaguh Kampungs” with their Ketuanan & NEP mindset…. To FACE… Read more »

KJ

Re liberalisation/de-regulation: I think the general literature is pretty clear on this that over the past quarter century or more liberalisation has meant de-regulation. It was said that over-regulation was the problem, hence the need to liberalise, i.e., de-regulate. This should not be confused with competition and a competition policy. Many comments on this, and the previous, post appear to have confused a liberalisation stance with a competition policy stance. In many areas, liberalisation has, in fact, created monopolies, and allowed monopolies to flourish. One clear example is the media: the Murdoch group controls Fox, Star, the Wall Street Journal,… Read more »

Antares

Greenspan smells reptilian.

gon

Netto, kindly note that the debate focus or soul searching in the West is about the financial system which is systemic in nature. The free market discussion is not about non financial market. The financial collapse is a result of inadequate or non performance in the regulators doing their job! The debate is whether the financial system should be allowed to regulate themselves or be held in private sector hands. So please read with care. Moreover the situation or issue here is different. I will not elaborate more, suffice to say our present issues here in Malaysia are quite different… Read more »

Andrew

I respect his guts to admit his mistakes. But… Nasi dah jadi bubur.

nkkhoo

I think some people like Anil mixed up liberalization and deregulation as one thing. Market liberalization does not mean that you let the market force 100% freedom to adjust itself, is more on let everyone got equal chance to enter the market. US financial crisis is mainly due to over-selling virtual financial products like derivative products worth three or four times than real economic. This kind of deregulation (no regulation!!) to allow bubble to grow is the culprit, not the liberalization of a protected market. Liberal the market without regulation is creating another wild west world. Liberal the market with… Read more »

Ganesh

I just recently realised, the Mat Salleh is not that honest as what we potray them to be.

With all the nonsense going on there and the exhorbitant spending by top management ie private jets etc, I realise, the cronyism in Malaysia is not exclusive after all. It happens all over the world.

Juan Taman

Alan Greenspan believes in the power of free market but lacks the understabding of human “Greed” a powerful as well as evil part of human nature. It was human Greed that destroyed world communism not the western capitalism.
Now this Greed has come to haunt the western world in the doing of unregulated financial system reducing their citizens’ pension by half and creating unemployment
The world need fair trade, fair competition and regulated human behaviour.