A good article in the NYT about Alan Greenspan and his role in the present mess:

http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html

The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.

(Pause to boggle at that amount.  By contrast, the GDP of every nation in the world is $54.3 trillion.)

Greenspan, as a good disciple of Ayn Rand, consistently opposed regulating the derivatives market, refused to recognize the housing bubble, worked to repeal existing oversight laws.  There were opposing voices, but they were ignored; attempts to regulate were pushed down.  Greenspan assured Congress:

I believe that the general growth in large institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically — I should say, fully — hedged.

The article has another villain, by the way: Robert Rubin, Clinton’s Treasury secretary, who fully endorsed Greenspan’s policies.

This sort of thing, by the way, is part of my response to the people who occasionally write to me suggesting, in effect, that stupid people shouldn’t vote.  Smart people have their own ways of being stupid, and when they’re wrong, they fail much more spectacularly than the merely ignorant.  Greenspan wasn’t dumb; neither were the investment bankers and mortgage aggregators and derivative hawkers who created the financial crisis; for that matter neither were the neocons who worked up the Iraq war.  Technocrats can be very wrong.  Treating Greenspan as “The Oracle” was a huge mistake.

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