So I was just reading this article yesterday on the way to work and I was really surprised by what I was reading. Granted for the better half Greenspan’s term as head of the Fed I was still a kid and had a shady understanding of politics let alone how the economy was run. Now, that I’ve grown up I do like to try to understand economics a little bit but I’ll certainly admit that my understanding is still rather foggy.
What troubles me about this article and the way the economy has been going is that it seems that we have completely forgotten about why there were so many regulations on banks in the first place. I know that we have new financial instruments and that in theory the market will regulate itself and so we do not need to have regulations in place. But it seems to me that this follows the same path as much of Marxist philosophy.
Should we believe the best in people then communism/socialism would work beautifully because everyone would be living equally and all contributing to society. Now in real life, that is not the case. For one, many people believe that they deserve a bigger piece of the proverbial pie than everyone else, which is why capitalism exists. For two, there are people who are leeches on society who choose not to work (yes, they actually choose not to work… trust me I didn’t believe it until I saw it with my own eyes). So while I am a big proponent of socialism, I just do not think it is possible implement well in a pure sense. Therefore we have to work around human nature.
In the same sense the financial markets should regulate themselves and should those people working in the financial markets never take higher than necessary risks or advertise falsely then we’d be great. Essentially if we could eliminate greed then it’d be perfect. But let’s face it, why do most people work on Wall St, I assure you it is not because they are do-gooders and think economics is fascinating, I would hazard a guess that even the most philanthropic Wall Streeters have at least a small greedy streak. If you truly loved the theory of economics I doubt you’d be on Wall St, you’d much more likely be a professor teaching and researching the theories.
That being said, I find it flabbergasting that Greenspan can still support essentially complete deregulation of the financial markets. Especially with financial instruments such as derivatives now being seen as rather controversial as far as deregulation goes. I mean just looking back at history regulations were put in place so that we could avoid the financial catastrophe that is occurring now. I mean just look at what the after effects have done to Iceland.
Another thing I would like to mention is that Greenspan fought for deregulation not for a small period of time but for the entire time he was in office. Granted, I would like to blame this whole thing on the Republicans (being the good little liberal that I am) but it’s not entirely their fault. I will say that they hold a large share of the blame but I don’t see any Democrats that were crying “wolf” when they should have been. We, as a country, were far too greedy for far too long and these are simply the consequences – depressing as they may be. I surely hope that we can finally learn from our mistakes and that the economy will smooth out sooner rather than later.