Monday, November 15, 2010
My wife left town a few weeks ago for a work trip, and like any thirty-year-old man away from the watchful eye of his spouse, I cued up PBS' Frontline documentary about unregulated derivatives and the early warning signs of the financial crisis.
You know women, always keeping a man from his current events documentaries. Am I right, fellas??
The documentary mainly centered on a battle of minds between Alan Greenspan, ardent de-regulator and chairman of the Federal Reserve, and Brooksley Born, who wanted to regulate financial derivatives. (Bear with me, this post will get interesting. I think.)
Backstory on Greenspan. He believed in the purity and rationality of financial markets, and thought that any attempt by the government to meddle with the markets was doomed to fail. And he believed this with an almost religious zeal. Greenspan was heavily influenced by the libertarian philosophy of Ayn Rand, and was a member of Rand's inner circle, to the extent that she stood beside him when he was sworn in as Chair of the Council of Economic Advisors.
Well, we all know what happened. While serving as Chairman of the Federal Reserve for nearly twenty years during a period of nearly unprecedented prosperity, Greenspan succeeded in his efforts to persuade the country that a largely unregulated financial market was the way to go.
Then we experienced the greatest financial meltdown since the Great Depression, and guess what, financial derivatives and deregulation played a big role in that crisis.
Now. You're Alan Greenspan. One of the biggest calamities in financial history just occurred. You have just spent your entire working life trying to achieve a goal, you did it with incredible zeal, and you were so talented you succeeded at obtaining it. But just as you're walking out the door having completed your life's work, something goes very very wrong that strikes at the heart of everything you worked for.
What do you do?
I would wager that at least 95% of the human population would blame external factors. They'd say, "Oh, well, such and such couldn't have been anticipated!" Or they would point to the fact that not all of their suggestions were implemented, and say, "The problem is that people didn't listen to me enough."
Not Greenspan. In one of the most arresting moments in THE ENTIRE PBS SPECIAL ON FINANCIAL DERIVATIVES WHICH WAS BASICALLY THE CHUCK NORRIS ACTION MOVIE OF FINANCIAL DOCUMENTARIES, in October of 2008 Greenspan went before a Congressional Committee and said something pretty profound:
I was wrong.
And not a measly little, "I was a little bit wrong." Representative Henry Waxman asked Greenspan point blank if he was wrong about the events surrounding the crisis or whether his entire world view had been wrong:
Waxman: “In other words, you found that your view of the world, your ideology, was not right, it was not working."
Greenspan: “Absolutely, precisely. 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.”
(In an action movie that's where a tanker truck would explode.)
We all know that it's not easy to admit when we're wrong. Heck, it's not even easy to always spot when we are wrong in the first place. The brain wants to think it's right.
And it's another thing entirely to admit that we've been wrong about something on the order of an entire worldview. This was essentially Greenspan's religion, and at the end of his life he realized the foundation was shaky. That's a really big thing to admit to yourself, let alone to Congress. What is it like to look back on a life's worth of work and realize you went astray?
And sure, it's probably better to be, you know, correct in the first place than to have a deathbed conversion after things have already burned to the ground.
But I still think there's something great about Greenspan admitting he was wrong. We live in a world that is perpetually torn asunder by divisions and partisanship and circles where there's no such thing as being wrong as long as you're on the right team. Sometimes it feels like the truth is being splintered into a million pieces, and everyone gets their own little sliver to call their own, and the whole idea of truth is perpetually in the eye of the beholder.
But Greenspan looked at the facts, he looked as his track record and beliefs, and he couldn't square it. And there's something kind of amazing about someone standing up and saying, "You know what? I was wrong."