This is an interesting discussion.

One of many articles on Greenspan's resistance to the regulation of derivatives can found in this NYTimes article: http://www.nytimes.com/2008/10/09/business/economy/09greensp...

A google of "Brooksley E. Born" will show a considerable amount more.

Perhaps we could each start a blog to debate the various point here. They are interesting enough to warrant more exposure than a fading thread on hn.

Best,

JTU

Since Greenspan wasn't a decision maker wrt regulation, it's unclear why his opinion on regulation is any more relevant than his opinion on bubblegum. It's particularly interesting that his opinion is thought more important than the actions of congress critters who actually had a role in regulation.

I note that Dodd, Obama, Sen. Clinton, and Kerry all received significant donations from AIG and other investment houses and oversaw their regulation. Barney Franks was particularly vehement in telling us that Fannie and Freddie were perfectly safe and didn't need any regulation. (Which reminds me, Fannie and Freddie announced significant bonuses recently.)

Yet, we're talking about Greenspan.

The fact remains that there was significant regulation of AIG's biz. Any argument which starts from the assumption that there wasn't is fatally flawed.

"Since Greenspan wasn't a decision maker wrt regulation, it's unclear why his opinion on regulation is any more relevant than his opinion on bubblegum. "

Sheesh, it seems like you're just stretching your argument for the sake of it. By now, it's not like anyone else is even "listening" to this discussion, so neither of us have anything to prove.

Sure, Greenspan indeed had no official power in the matter but the press universally credits him with wielding sufficient influence to decide the question. I documented, as you requested, the fact that Greenspan testified against the regulation of derivatives. Now you say it doesn't matter. I would agree that the legislative branch was also instrumental in deciding derivative regulation BUT that discussion is pretty much irrelevant to the immediate question.

I simply criticized Greenspan, I didn't criticize-Greenspan-to-get-the-democrats-off-the-hook. I have no partisan axes to grind here, though I get the feeling you might. I would see the whole Washington establishment, democrat and republican, as enabling Wall Street's normal operations (which lead us to this crisis). Lots of folks can be blamed but Greenspan is very widely credited as being the articulator of the hand-off ("market fundamentalist") approach. Saying that he didn't have legal power over this or that is not a sufficient argument to challenge his status as architect of overall Washington approach.

Sure, I think by now I've acknowledged there has been plenty of regulation of AIG. As I think I've said, the point isn't regulation but what kind of regulation. Here, I would follow Doug Noland and others who see derivatives, CDOs and other entities as Wall Street devices for the creation of money-like-items - synthetic bonds with a AAA rating were the product was pumped out with the assistance of elaborate constructs like CDS's. This unlimited creation of money-like-objects ran part and parcel with a massive inflation of the value of assets - the bubble.

This process is ultimately equivalent the money-multiplier effect without any underlying capital requirement. Thus, it did not require just any-old-regulation but regulation like banks. The regulations on a savings banks is not simply to keep a single bank safe but to limit the money which banks as a whole inject into the system as a whole.

....

Did I mention regulation-like-banks?

> I would agree that the legislative branch was also instrumental in deciding derivative regulation BUT that discussion is pretty much irrelevant to the immediate question.

To be clear, you're saying that Greenspan's influence over the legislative branch is relevant but what they actually did is irrelevant...

> I simply criticized Greenspan, I didn't criticize-Greenspan-to-get-the-democrats-off-the-hook.

You found Greenspan's comments important enough to criticise. You didn't find other people's actions significant enough to rate a comment.

If your comments don't reflect your priorities....

> Did I mention regulation-like-banks?

And for the ntheenth time, AIG was regulated as a bank - that's what the office of thrift supervision does. AIG was also regulated as an insurance company.

If you're going to claim that "regulation-link-banks" would make a difference, surely the fact that AIG was actually was regulated like a bank is relevant.

You keep bringing up things (unregulated assets and the like) that have nothing to do with AIG. (Banks and insurance companies get no benefit from unregulated/off-balance-sheet assets.) Perhaps you ought to be discussing institutions to which they actually apply.