[Pen-l] Greenspan: "We need not rush to reform regulation"

[raghu <mraghu01@xxxxxxxxx>]

The Maestro plumbs new depths in shameless, disgusting, self-serving spin:
http://www.ft.com/cms/s/0/9c158a92-1a3c-11de-9f91-0000779fd2ac.html
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What, in my experience, supervision and examination can do is set and
enforce capital and collateral requirements and other rules that are
preventative and do not require anticipating an uncertain future. It
can, and has, put limits or prohibitions on certain types of bank
lending, for example, in commercial real estate. But it is incumbent
on advocates of new regulations that they improve the ability of
financial institutions to direct a nation’s savings into the most
productive capital investments – those that enhance living standards.
Much regulation fails that test and is often costly and
counterproductive. Regulation should enhance the effectiveness of
competitive markets, not impede them. Competition, not protectionism,
is the source of capitalism’s great success over the generations.

New regulatory challenges arise because of the recently proven fact
that some financial institutions have become too big to fail as their
failure would raise systemic concerns. This status gives them a highly
market-distorting special competitive advantage in pricing their debt
and equities. The solution is to have graduated regulatory capital
requirements to discourage them from becoming too big and to offset
their competitive advantage. In any event, we need not rush to reform.
Private markets are now imposing far greater restraint than would any
of the current sets of regulatory proposals.

Free-market capitalism has emerged from the battle of ideas as the
most effective means to maximise material wellbeing, but it has also
been periodically derailed by asset-price bubbles and rare but
devastating economic collapse that engenders widespread misery.
Bubbles seem to require prolonged periods of prosperity, damped
inflation and low long-term interest rates. Euphoria-driven bubbles do
not arise in inflation-racked or unsuccessful economies. I do not
recall bubbles emerging in the former Soviet Union.





-raghu.

--
Seeing is deceiving. It's eating that's believing.
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