Thursday, October 23, 2008

Alan Greenspan's Error

It really is the end of an era. The New York Times reports that former Federal Reserve chairman Alan Greenspan has admitted that he may not be so infallible when it comes to unregulated derivatives:
Although he defended the use of derivatives in general, Mr. Greenspan, who left his post in 2006, told members of the House Committee on Oversight and Government Reform that he was “partially” wrong in not having tried to regulate the market for credit-default swaps.
One member of the panel offered a baseball metaphor:
The responses from the panel were met with little sympathy from Representative John A. Yarmuth, a Democrat from Kentucky, who likened the three witnesses to Bill Buckner, the former first baseman for the Red Sox whose notorious error cost his team the 1986 World Series.
“All of you let the ball go through your legs,” Mr. Yarmuth said, using Mr. Buckner’s mistake as a metaphor. “And you didn’t want to let the ball go through your legs, you didn’t try to let the ball go through your legs, but it got through.”
Congressman Yarmuth has it almost right. I would put it a bit differently. Instead, I would describe it as pulling the player from the field and letting the free market deal with the ball. Alan Greenspan's error was not missing the ball, but thinking he didn't need to pay attention to the ball in the first place.
Update: I have more on the end of the Greenspan error over at the Guardian.


Anonymous Anonymous said...

I always make the agument that market regulation is like having umpires in baseball or referees in soccer/basketball, etc. Do unpires screw up the game of baseball? Well sometimes they make questionable calls, but ultimately, they keep both teams playing by the rules, break up fights, and keep the game moving, and eject players who disrupt the game or seek to harm members of the other team unfairly.
The same goes for the market. Without regulation, the "free market" becomes corrupt and greedy, and breaks all of the rules of the ideal free market.

12:12 PM, October 24, 2008  
Blogger Tom Noyes said...

Let's keep this baseball metaphor going. The proponents of deregulated financial markets believe that the market will return the ball to the infield even if it slipped through the shortstop's legs. One might think of it as a dead hand wielding a baseball mitt.

12:25 PM, October 24, 2008  
Anonymous Anonymous said...

The first fundamental rule of baseball: KEEP YOUR EYE ON THE BALL.


6:09 PM, October 26, 2008  

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