Greenspan Concedes Philosophy Wrong - Regulation of Markets Needed

"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.”

In remarkable testimony before the House Government Oversight Committee, Alan Greenspan, celebrated former Federal Reserve chairman and champion of a vastly deregulated free market system admitted in congressional testimony this morning that he “made a mistake” in trusting that free markets could regulate themselves without government oversight"

In his 18 years as head of the Fed from 1988 to 2006, Greenspan constantly pushed for deregulation of the financial market. He had faced recent criticism for having failed to adequately oversee credit derivatives, an unregulated portion of the financial market "whose excesses partially led to the current financial crisis", according to the New York Times.

Greenspan, who admitted to the House Committee of Government Oversight and Reform that he was “partially” wrong for not having sought regulation of the market for credit default swaps, admitted to " a more serious flaw in his own philosophy that unfettered free markets sit at the root of a superior economy." In response to questioning by committee chairman Henry Waxman (D-Los Angeles), Greenspan admitted:

“I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,” Mr. Greenspan said.

Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said.

“Absolutely, precisely,” Mr. Greenspan replied. “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.”

Emphasis added; full story at the New York Times.

Video: Greenspan Discusses 'Credit Tsunami'

(Photo credit - U.S. Congress, from prior testimony before House Financial Services Committee)