Friday, October 24, 2008
Greenspan's Mistaken Faith in Self-Interest
Given today's post of the chapter on self-interest as a challenge to Into the World's hypothesis, I couldn't resist noting Alan Greenspan's widely reported testimony before the US Congress the other day.
"I made a mistake in presuming that the self-interest of organizations...were such that they were best capable of protecting their own shareholders..."
Later he noted that "As much as I would prefer it otherwise...I see no choice but to require that all securitisers retain a meaningful part in the securities they issue."
In retrospect it is easy to see that the current financial crisis is the result of the entire system acting on a giant Ponzi scheme. I'll leave the analysis to the experts, but it seems that the assumption that the housing market would continue to rise at a rate far outstripping wage increases was the critical piece in the delusion so many of us bought into. However, the view that self-interest can be the guiding moral light in economics and elsewhere seems to be to blame too.
Check out Mike Wallace's 1959 interview of Ayn Rand for some telling commentary: