Note: And now for something a little different!
My wife left town a few weeks ago for a work trip, and like any thirty-year-old man away from the watchful eye of his spouse, I cued up PBS’ Frontline documentary about unregulated derivatives and the early warning signs of the financial crisis.
You know women, always keeping a man from his current events documentaries. Am I right, fellas??
The documentary mainly centered on a battle of minds between Alan Greenspan, ardent de-regulator and chairman of the Federal Reserve, and Brooksley Born, who wanted to regulate financial derivatives. (Bear with me, this post will get interesting. I think.)
Backstory on Greenspan. He believed in the purity and rationality of financial markets, and thought that any attempt by the government to meddle with the markets was doomed to fail. And he believed this with an almost religious zeal. Greenspan was heavily influenced by the libertarian philosophy of Ayn Rand, and was a member of Rand’s inner circle, to the extent that she stood beside him when he was sworn in as Chair of the Council of Economic Advisors.
Well, we all know what happened. While serving as Chairman of the Federal Reserve for nearly twenty years during a period of nearly unprecedented prosperity, Greenspan succeeded in his efforts to persuade the country that a largely unregulated financial market was the way to go.
Then we experienced the greatest financial meltdown since the Great Depression, and guess what, financial derivatives and deregulation played a big role in that crisis.
Now. You’re Alan Greenspan. One of the biggest calamities in financial history just occurred. You have just spent your entire working life trying to achieve a goal, you did it with incredible zeal, and you were so talented you succeeded at obtaining it. But just as you’re walking out the door having completed your life’s work, something goes very very wrong that strikes at the heart of everything you worked for.
What do you do?
I would wager that at least 95% of the human population would blame external factors. They’d say, “Oh, well, such and such couldn’t have been anticipated!” Or they would point to the fact that not all of their suggestions were implemented, and say, “The problem is that people didn’t listen to me enough.”
Not Greenspan. In one of the most arresting moments in THE ENTIRE PBS SPECIAL ON FINANCIAL DERIVATIVES WHICH WAS BASICALLY THE CHUCK NORRIS ACTION MOVIE OF FINANCIAL DOCUMENTARIES, in October of 2008 Greenspan went before a Congressional Committee and said something pretty profound:
I was wrong.
And not a measly little, “I was a little bit wrong.” Representative Henry Waxman asked Greenspan point blank if he was wrong about the events surrounding the crisis or whether his entire world view had been wrong:
Waxman: “In other words, you found that your view of the world, your ideology, was not right, it was not working.”
Greenspan: “Absolutely, precisely. You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
(In an action movie that’s where a tanker truck would explode.)
We all know that it’s not easy to admit when we’re wrong. Heck, it’s not even easy to always spot when we are wrong in the first place. The brain wants to think it’s right.
And it’s another thing entirely to admit that we’ve been wrong about something on the order of an entire worldview. This was essentially Greenspan’s religion, and at the end of his life he realized the foundation was shaky. That’s a really big thing to admit to yourself, let alone to Congress. What is it like to look back on a life’s worth of work and realize you went astray?
And sure, it’s probably better to be, you know, correct in the first place than to have a deathbed conversion after things have already burned to the ground.
But I still think there’s something great about Greenspan admitting he was wrong. We live in a world that is perpetually torn asunder by divisions and partisanship and circles where there’s no such thing as being wrong as long as you’re on the right team. Sometimes it feels like the truth is being splintered into a million pieces, and everyone gets their own little sliver to call their own, and the whole idea of truth is perpetually in the eye of the beholder.
But Greenspan looked at the facts, he looked as his track record and beliefs, and he couldn’t square it. And there’s something kind of amazing about someone standing up and saying, “You know what? I was wrong.”
Daryl Sedore says
He who blames others has a long way to go.
He who blames himself is halfway there.
He who blames no one has arrived.
"Freedom only happens when you stop thinking the outside world is the source of your pain."
Liz Fichera says
Wow. You weren't kidding that was some kind of different post!
Krista V. says
I majored in Economics in college ('02-'06), and Alan Greenspan was a rockstar. Now, I can't help but wonder if anyone really knows what the heck they're talking about. Mathematical models are only as good as the axioms underlying them, so if the axioms are false, well… (<–That ellipsis is the blog comment equivalent of a not-far-distant nuclear boom.)
Wow – you're posting very early these days, Nathan. Works great for those of us across the pond! :o)
Greenspan's mea culpa came when he was out of office, no? I could be wrong, but it smacks of public relations image repair. Too bad Ayn Rang isn't around to apologize for those awful books.
There's a book called "Mistakes Were Made (But Not By Me)" that talks about why people justify things they do/believe that are so obviously wrong. It had a strong impact on me, and on the rare occasion when I hear someone unambiguously stating they were wrong, I wonder what makes them so different from just about everyone else, why they can self-critique in a way most people never manage.
As for mathematical models, I don't know if Greenspan was COMPLETELY wrong – like a lot of libertarians (myself included) I think he just forgot to factor the human elements (e.g. greed,or the tendency to overweigh short-terms gains) into his calculations.
Anita Saxena says
I agree that it takes a lot to come out and say, "I'm wrong." But, part of me wonders if Greenspan may just be folding his cards a bit too early, a little self doubt. Perhaps, as he said, his model may have had flaws. But when it comes to the country's finances there are so many external and internal factors at play, it's hard for any one to accurately analyze any of it. Just my two cents.
Haste yee back ;-) says
I urge EVERYONE who is even remotely interested in this "Financial Meltdown" to read Matt Taibbi's Rolling Stone article, THE GREAT AMERICAN BUBBLE MACHINE… and then go on to his book GRIFTOPIA.
And it'll happen again…
Total American Banker's executive bonus packages for 2009… $70
BILLION… (a record) – just about 10% of the $780 Billion stolen from American taxpayers for Banks and Wall Street's "Bailout!"
Goldman Sachs total fine for knowingly selling bogus paper… $580 Million – 14 days worth of their profit!
Financial reform… ain't gonna happen!
Haste yee back 😉
I can appreciate a person like Greenspan that so willingly admits when he is wrong. What heats me to an internal boiling point is the person who is so obviously wrong and just never apologizes. And then have the audacity to debate with others about the fact that they could have been miss quoted or misunderstood. If you’re wrong then say you’re wrong. It is really a simple concept that should be one of the life lessons we should all be learning in kindergarten or pre-k 2 nowadays.
Thanks, Nathan. This is really interesting. During the actual meltdown, I was so pissed at Greenspan et al, I didn't appreciate his honesty in owning up.
The older I get, the more I realize nobody knows anything. But I'm good with that….
Chris Phillips says
This is the same guy who had a huge hand in the housing crisis by suggesting that people borrow against their homes like they were some bank people had just never though of tapping into. A lot of people lost their homes. He was wrong about more than derivatives.
Allison M. Dickson says
Now if only he could have a sit-down with Ben Bernanke and tell him to stop with this Quantitative Easing nonsense that is going to further send our economy down the drain while further fattening the Goldman Sachs overlords.
Rick Daley says
I'll second Haste Yee Back ;-)'s recommendation on the Taibbi article. It's long, but very compelling (and enraging, and frustrating, and…well, just read it).
WORD VERIFICATION: honiste. The phonetic truthiness Alan Greenspan is endowed with. (Or "with which Alan Greenspan is endowed" for the grammar police).
Julia Rachel Barrett says
Brave. I think we must take responsibility for our actions. It's very easy to blame everything and everyone…but us. I've always like Alan Greenspan.
Istvan Szabo, Ifj. says
Great post. Hearing the following words together "Sorry. I was wrong." is very rare these days, especially from the people in power. It's good to see there are rare exceptions.
I used to think that it was a virtue to admit when you wrong, but it turns out I was mistaken. I will never concede that point, however.
Usually, I admire someone who can own up to his mistakes. Unless, of course, those mistakes are on an unfathomable level of stupid and have far-reaching, disastrous consequences.
Greensplan, a supposedly educated, professional, grown man believed in self-regulation? He believed that the greediest, most cutthroat people who ever lived would voluntarily show restraint and good judgment? That would be like a band of pirates deciding to only steal a certain amount from a ship.
And he didn't outgrow his Ayn Rand phase shortly after college???
Good post, but I am not impressed with the man. Not one little bit.
Bane of Anubis says
Saying that you're wrong at this stage is kind of like an atheist finding religion on his deathbed.
I think the economy gained the maximum it could from his side of the balance equation. I'm pretty sure he was a Friedman School of leave the markets alone. On the other hand he was always tweaking them with many forms psychologically. He was a good man I don't think he was completely wrong just to attached to ideology and unable to adapt quick enough when the elevator cable snapped and the emergency brakes came on.
Krugman of the NY Times is a good liberal historical source. Baron's is a good conservative source.
I memorized the conflict as a tool:
Fair Markets Vs. Free Markets
Limited Regular Intervention Vs. Zero Rules
Keynesian Followers Vs. Friedman Followers
Which translated into culture equals:
Some People are Nuts Vs All are Sane
Freshwater Economists Vs. Saltwater Economists
Supposedly the total derivative debt of securities generated by car house and student loans is 205 trillion. A trillion hundred dollar bills equals a 68 mile stack into the sky. That's a stratospheric complexity level that we may not be able to unwind back into simple products with real bills of sales and titles of ownership certificates.
When I watch a documentary like that I feel like having a panic attack but just refuse to. The sun came up this morning that's all I know.
Deni Krueger says
My hubby is deployed, and he would absolutely agree with you about catching up on the current events documentaries:)
Taking responsibility for your actions is a huge problem with kids in every school I've worked with over the last 8 years. Sometimes it seems the mantra has become, "Well he/she made me…"
Anne R. Allen says
When you announced you were leaving agenting, one of my blog commenters said it was like hearing the Pope had made a career change. A little hyperbole there, but it's certainly true of Greenspan renouncing Ayn Rand and all her works.
Yes, he was brave (I think you're brave, too–and I love this post.)
But why didn't anybody listen??! This recent "landslide" of free-market Rand-ites (One of them named for her) is planning to further enable the financial robber barons to destroy the American middle class–and everybody's cheering. Love the recession? Wait till you see the total financial collapse we've got planned for you in 2013–yay!
I appreciate when people take responsibility for themselves. I wouldn't say he was completely wrong though.
Haste yee back ;-) says
Thanks, Rick Daley… glad you read it. Here's another, not from Taibbi. It's comming out soon.
IT TAKES A PILLAGE by Nomi Prins
The financial community is selling out America and will continue as long as they own ALL the politicians who allow them to get away with this reasoning, "If your bets go bad, take as much as you want from the treasury" – and they do!
The average Goldman Sachs VP, of which there are many… (and I know one)… take home bonus was in excess of $500,000. (Goldman's not alone in this heist).
These people do not care about America as we knew her!
Haste yee back 😉
To really truly face the consequences of one's action when they have been destructive or deeply hurtful- is one of the greatest challenges someone can face. To grieve and grapple with one's terrible mistakes and ultimately come to terms with one's humanity is heartbreakingly difficult, which requires true strength of heart. When we can do it, though, we can find a certain deep acceptance.
If you haven't seen Ron Howards film about Nixon, he deals with this same topic in a poignant way.
Great topic, Nathan and worth discussing. We all have to deal with regret.
Since your wife's out of town, can I marry you?
Seriously fantastic post.
Fawn Neun says
As long as some people continue to value the dream of cash over the solidity of their own honor, deregulation will never work to the benefit of society in general.
Matthew Rush says
I always knew you were a "Marketplace" kind of guy.
D.G. Hudson says
Isn't it funny how we admire those who tell the truth (which should be the status quo) since we've been inundated with so many liars in highly responsible positions in the last few decades?
It takes guts (that gut instinct again)to admit you're wrong. Thank goodness everyone doesn't drink the 'it wasn't me that did it' koolaid.
Is there hope for the human race yet?
Interesting post, except for the women keeping men from their news comment. Hmmm.
This is a great point to make to writers.
If you blame others (such as the publishing industry's "gatekeepers") for your failures, then you're placing yourself in the role of victim-without-hope.
If you own your mistakes–take responsibility for your failures–then you're seeing what you can do to improve and succeed next time. You're more likely to maintain hope and keep trying.
It's easier on your ego to blame others, but it's better for your career if you don't.
Kristin Laughtin says
Only you could make a post about economics that entertaining to me.
That said, I think it shows a good deal of integrity that he was able to admit to himself, as well as the rest of the world, that the entire basis of his philosophy was just plain wrong. It's hard enough for most people to admit they're wrong about little things. Having to confront your deepest-held assumptions, especially if they were based on evidence, and realize you've still drawn the wrong conclusions, can be devastating. I imagine most people would keep that private, try to defend their choices, and blame others when confronted, especially given the number of people who are angry with him because they lost their homes…
Josin L. McQuein says
When I was in high school, we had to "analyze" political cartoons as part of our government class. One of the very few I can remember was an unemployment line where the different people were telling why they'd ended up jobless.
"They closed our plant last month," said a guy in jeans and flannel.
"It's a tough market," said the recent graduate in his college sweatshirt.
"Greenspan sneezed," said the high powered businessman in an expensive suit.
It stuck with me because of how well it illustrated how so much was placed on the opinion and recommendation of one man.
People try and over-simply things. They say there's a global economy where everyone is interdependent on everyone else, yet when things go toes up, there's no shortage of blame for specific people. Even if it's self-applied
I think it's important to note that people who blame Greenspan for losing their homes are doing the exact opposite of what he did. People lost their homes because they took out loans they couldn't possibly afford and decided to think about the consequences at some later date. I have yet to see one former homeowner come forward and say, "I was wrong to take out that massive mortgage."
Don't get me wrong, I really feel for those people. It's wrong that so many people lost their homes. However, if I decide to drive 80 mph down a windy, narrow road and crash, do I blame the police for not spotting me and pulling me over before I crashed?
Just a thought.
Other Lisa says
Hey, I watch current affairs documentaries!
I hope Greenspan will continue to speak up about what went wrong. It astounds me that in spite of all evidence to the contrary that Randians and Free Marketeers still hold considerable sway over the macro-economic policies of the US…and that, yeah, the banksters will continue to get away with their greed and outright criminal behavior.
Ladies and gentlemen, there are some advantages to being Canadian. We don't have it as bad as you do, at this point. However, we still suffer from the same greed.
The CEO of Nortel, which imploded over the last decade and has been sold for organs since, has lodged a claim with Nortel's other creditors for multi-millions in compensation denied him under the terms of bankruptcy protection. A bankruptcy which occurred on his watch.
It's difficult to hear this man claim he was wronged while watching friends and ex-colleagues who were denied severance and pension scramble to find new jobs that might fund their retirement.
Thinking about it makes me physically ill, but then we've got socialized medicine so… you know, I've got that going for me.
I respect people who can admit that they're wrong. Good for Greenspan!
BUT – he needs to get back to work! Him and Rand have produced a million little followers who STILL believe in the free market system. He needs to convince all of them that it was wrong too!
As others have said – this economic collapse will not turn until the corporations get out of government.
It is nice to know that even though I have crossed the threshold into the world of my thirties, I am not alone in finding a new found enjoyment with documentaries and the History channel.
Wow. Politics aside, I'm impressed by someone who will admit, without qualification or excuse, that he was wrong.
wry wryter says
Okay, I admit, I was wrong, dead wrong, as wrong as wrong can be…46 years ago I should have slept with Russel T.
So Mr G admitted he was wrong. He manned up, so what, that doesn't pay the bills, save the house, or the financial pile of s—.
Nathan, I loved this post, you were meant for PBS or NPR or CNN or whatever.
How long is it going to take for you to admit, you were wrong by leaving agenting?
I miss you.
Amen, Allison! Ben Bernanke's Quantitative Easing is the answer? Ugh. Highly suspicious. The bigger the government, the bigger the fraud.
Jeff S Fischer says
Thank You. That was interesting. I have always thought Ayn Rand was a great writer, but I thought her philosophy was a little too close to inspired fiction for the real world. I had no idea about the Greenspan connection. I saw a documentary on Steven Hawking the other night, I don't know how old it is, and he admitted after 30 or 40 years that his ideas about black holes were wrong. Maybe this truth telling will become a popular mode of expression. We can only hope.
When I go out of town my husband watching five hour Taiwanese films.
Nathan, this post is so awesome I don't think there is a way for me to describe its total awesomeness. Or something to that effect (that makes more sense).
AWESOME! (is there a German word for Awesome? perhaps that would be better)
Economics is one of the many things I don't understand and don't claim to, but I have to feel some joy at someone big and important saying he was wrong. Humility is a very fine thing. And not something many Americans are comfortable with. (Dick Cheney).
So only guys watch financial documentaries? Women are too silly for that? Not sure about your point there.
Alan Greenspan has also said that the financial crisis was not his fault, and he's blamed the financial collapse on many sources, including the Chinese and even the fall of the Berlin Wall: Alan Greenspan: The Financial Crisis Was Not My Fault. Also, this year Alan Greenspan began blaming low-income housing and NOT the investment community for the financial collapse … and he's taken a job as "consultant at Pacific Investment Management Co., the $1 trillion asset management fund led by William H. Gross whose bond fund made $1.7 billion when he correctly bet that the federal government would not let Fannie and Freddie fail."
Nathan Bransford says
Just a joke about my debaucherous current event watching when my wife is away.
Haste yee back ;-) says
Want more? (I know I'm harping, but these people are really taking the Middle Glass and our Treasury to the woodshed!)
Available on Kindle… IT TAKES A PILLAGE by Nomi Prins.
Review of book at this link…
Haste yee back 😉
Bryan D says
Great post, but Ayn Rand is rolling over in her grave for having been called a libertarian! (see her thoughts on libertarianism here: https://www.aynrand.org/site/PageServer?pagename=education_campus_libertarians)
Alan Greenspan did not exactly say he was sorry. He said that he might have been wrong in his exact model of how the world works. He now has his own consulting company, Greenspan Associates. He spends a great deal of his time studying data in order to tweak his model of how the world works. One of his theories is that the investment community might not have been selfish enough (selfish in the way Ayn Rand defines it) because they missed how detrimental their behavior was to themselves. He doesn’t seem to worry too much about people who were hurt in the financial crisis. His consulting clients now include Pimco, Deutsche Bank, and Paulson & Co., the hedge fund that made billions betting on the housing bust!
Another interesting article suggesting that Alan Greenspan hasn't completely changed his worldview:
Alan Greenspan Fights Back
M Clement Hall says
But that doesn't stop him from enjoying the pension he gets, nor cause him to hurt for all those who have lost theirs.
Easy to say, "Sorry about that. I blew it" when it costs you nothing.
No, "Lo siento" there, he doesn't feel any pain, and as Eisenhower said, there's no more useless human sentiment than remorse.
Lillian Grant says
You and my husband should get together. He loves those documentaries. I work in the finance game so I am not so excited to watch it at home. Fortunately we are more regulated than most and the financial crisis was just a hiccup on the way.
You have to admire a man who can admit his mistakes even if it was after the entire US economy got flushed down the pan.
I thank God Australia believes in a less capitalist regime.