Some Thoughts

When testifying yesterday before the House Committee on Government Oversight and Reform, former Federal Reserve Chairman Alan Greenspan said he misjudged that banks and other financial institutions would work to protect their shareholder's interests. Mr. Greenspan seems to be shocked by the idea that those investment bankers would care more about their houses in the Hamptons then a retired couple in Wausau, Wis.

This is frightening on so many levels. However, there are two areas in particular that jump out:

• First - Princeton Economist John Forbes Nash won a Nobel prize for his refining of game theory. Basically, the theory says people will act in their own self-interest, not the perceived interest of an outside group In other words, the investment banker cares more about his BMW than a shareholder's equity. Given the choice between buying that car, or increasing shareholder equity, guess which he chooses. 

These theories, now accepted as fact, were first published in the early 1950s. Was Greenspan on vacation then? Was he not keeping up with his own discipline? For that matter, Nash won the Noble in 1994. Even if Greenspan was not reading old economic journals, did he not read about Nash's Noble and why he won it? It bogles the mind that a supposedly brilliant man like Greenspan was not aware of Nash's work.

• Second, it is generally known that Greenspan is a devotee of Ayn Rand. He was a member of Inner Circle for a time. Rand believed strongly in laissez-faire capitalism. Greenspan must have consumed the Kool-Aid. Its what he tried to do the economy. 

And look where it got us. As I write this, the Dow has lost half its value in the last 10 days and somepeople are predicting the S & P will bottom out at 700. Two years ago, it was over 1,500.

Now it is true there is a lot of blame go around for this mess, but I think it is fair to say Alan Greenspan fathered the entire thing.