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New and sounder system

'We are in the midst of a once-in-a century credit tsunami. Central banks and govts are being required to take unprecedented measures. In 2005, I raised concerns that the stock market mechanisms were flawed and the protracted period of its existence, if history was any guide, would have dire consequences. This crisis, however, has turned out to be much broader than anything I could have imagined. It has morphed form one gripped by liquidity restraints to one in which fears of insolvency are now paramount. Given the financial damage, I cannot see how we can avoid a significant rise in layoffs and unemployment...All of this implies a marked retrenchment of consumer spending as households divert an increasing part of their incomes to replenish depleted assets and stocks. A necessary condition for this crisis to end is a stabilisation of stock prices...the ultimate collateral support for much of the commercial backed securities....' The above is a doctored version of Alan Greenspan's testimony in Congress. But it does reflect in some ways to the crisis in the financial system and the stock market today. Greenspan had admitted that his blind belief in the free market and how financial institutions will protect their shareholders' interest was wrong. And every party in the system is an accomplice to this failure, from regulators, financial institutions, rating agencies and watchdogs. When greed is in the minds of management, regulators, and all concerned, the system will crack. Or when false premises or untenable missions and goals were set, things will go wrong. Perhaps this financial crisis is a wake up call to review what we set up to do, to achieve, and whether these are right, attainable, or flawed from the start. Do we want to be an international financial centre? Yes. Do we want a stock exchange that is number one is Asia? Yes. Do we want all the international financial institutions to be here, the hedge funds and all? Yes. Can we manage them? Or would we allow them to dictate to us how things should be to our detriment? Or should we scale down our lofty ambition and admit that we are small and there is a limit to how big we can grow before we get choke to death? We definitely need to reveal the existing structure, mechanism, rules of the game and the goals we set for ourselves. All organisations are run by human beans. And human beans are selfish by nature. They will think of their own interests first and the interests of the organisations they are in charge. As long as these organisations are profitable, the rest can go to hell. Doesn't matter to them. And that is what is happening today.


Anonymous said...

The banking system, with its leverage lending rights, have creating credit out of thin air and is the primcipal cause of all bubbles. Once the banks curb credit lending, the whole system contracts in multiples because of the leverage and we now see the housing sector in trouble, the stock market in trouble and soon credit card debtors in trouble as well. We are not yet hitting the bottom.

Anonymous said...

This is Greenspan in a last ditch effort to preserve his legacy - too late, the world won't remember him well.

It amuses me that Greenspan is still trying to shift the blame and not assume responsibility, suggesting that capitalism can occasionally fail ('once in a century tsunami'). He blames it on banks - but isn't that blaming the victim for the crime?

Who supplied the leverage in the first place?

Answer: The Federal Reserve

The sad thing is that he labels this as the 'fault' of capitalism - when this has nothing to do with capitalism, but everything to do with the fiat monetary system that Greenspan used to preside over.

This is not a failure of deregulation, but the failure of REGULATION, redbean.

We need real unbridled capitalism and more deregulation!

Anonymous said...

You need to watch this:

John Stossel's Politically Incorrect Guide to Politics

Anonymous said...

The Wisdom of survival today(era) is bankrupt, bankrupt loh, I am still living mah, so what?

You put a guy with the above mentality in the prison, he will make it(cell) his home and be as happy as ever. Anything wrong with the guy? Nothing, I would say.



redbean said...

and he will be very proud to return to society as a talent.