Posted by
Rajjpuut's Folly on Friday, July 10, 2009 2:43:14 PM
. . . for the mess he helped create. There was no more enthusiastic advocate of the mortgage-guarantee legislation and the derivatives addition to the financial markets than the “old lion” of the Fed about nine years ago. In 2004, after James Stack of Investech.com had been warning first about the mortgage-guarantee collapse and the derivative mess for almost a full year, Mr. Greenspan went so far as to applaud derivatives like this: “Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” Words of a wise man . . . NOT!
Warren E. Buffet had commented only a few months earlier that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” . . . but the man in charge of the shooting gallery, the man who had to be expected to know, Mr. Greenspan, was praising them to the hilt -- AMAZING!
Treasury secretary Timothy Geitner who as Greenspan’s right-hand man should have known better, now says that “derivatives blindsided the government.” Well, yes, you put a crap game into effect, you might expect that gambling would take place, no? And a whole lot of smart banks and brokerages have never once “invested” in derivatives because “quite frankly we don’t understand how they work,” according to world famous financial operative George Soros.
The Greenspan “legacy” is sorely tested today by anyone in the know. Because of his position as the chief financial overseer of the country, Greenspan’s opinion held sway when derivatives were discussed. These exotic contracts supposedly promising to protect investors from loss never had a more devoted champion than the ex-fed chairman himself. “We have found over the many years that derivatives have been an exceptional vehicle and extraordinarily useful in transferring risk from those who shouldn’t be taking risk to those who are willing and able of doing so.” Those words in 2003 were followed in the next breath by these: “We think it would be a mistake to more deeply” regulate those contracts. The problem was, of course, GREED . . . one of the two motivations always at play in the markets: greed and fear.
When so many aggressive investors were getting rich overnight on derivatives, the “play” became accepted as commonplace. When those derivatives even began to involve mortgage loans . . . well the rest is history. Thank you, Mr. Greenspan, your legacy is safe in my hands.
Live long, strong and ornery,
Rajjpuut