Economies: Greenspan's arrogance un-dimmed

"I have found a flaw," said Greenspan before a Congressional Committee yesterday.

That's the first in a long line of responses that should have been contrite but instead turned out to show that Greenspan still does not understand nor acknowledge the depth of his responsibility for the current financial crisis that threatens to push the world into recession.

He hasn't found anything: yes, there is a flaw, one which he says "I don't know how significant or permanent it is," but it was found by others. And it was plain to see.

As Greenspan explains it, his "mistake" in which he was "partially wrong" was justified because "I'd been going for 40 years or so with considerable evidence that it was working exceptionally well."

What was that?

It was that "I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms."

He calls this a "once-in-a-century credit tsunami." A tsunami is characterised by the fact that everything on the surface is calm but there is a massive and fast moving wave that is invisible.

Greenspan, in his own egotistical manner, did not apologise for any of this. Indeed, his focus was not on the victims, nor even on the financial institutions, but on himself. Not to deliver any expression that he was contrite but to say "I have been very distressed by that fact." The fact in question was that "he had found a flaw." But in the real world, where real people lose their jobs and in poor countries become diseased and die when the money dries up, no one cares a jot how Greenspan responds to the self-directed "how does that make you feel?"

Greenspan says his flaw was that financial services businesses should not be so trusted with their own regulation.

This "silo" approach of economists, of which Greenspan is an example, allows them to say "other things being equal" - and to say "it's not really my fault" when it all goes wrong.

But both the sub-prime housing crisis and the change in attitude in financial institutions was clear to anyone that wanted to look. It was absolutely not a tsunami.

In fact, in mid 2006, just as the crisis was taking hold and just before he handed over to Bernanke, Greenspan warned the financial industry that the housing market was overheating and that they should be prudent with lending. Whilst much of the damage was already done by that point, there was another 18 months of hard banging of nails into the coffin of the US financial sector which was already dead but didn't know it.

And the refocussing of corporations on dividends and bonuses at the expense of long term growth was also apparent - indeed, from 2004 onwards article after article pointed out that Greenspan's policies actively encouraged short-termism. Profit today at the expense of tomorrow was at the heart of Greenspan's economic policy - as it seems to be with Bernake even now.

The man whose words had power to move markets even after he left the Fed fouled up. Everyone else knows it. He just can't bring himself to admit it.

In fact, he sought to pass the blame away entirely. It was, Greenspan said, a lack of data, and the use of innaccurate data, that caused the business models to crash and burn.

"The best insights of mathematicians and finance experts, supported by major advances in computer and communications technology. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades a period of euphoria."

So, to quote the often maligned Donald Rumsfeld "

Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns - the ones we don't know we don't know"

That quote won an award for "The Most Nonsensical Remark" by the UK's Plain English Campaign.

They were wrong: it is in fact extremely erudite, and if Greenspan had applied it, there would have been, at least, a chance that we would not be where we are today.

Instead the arrogant and egotistical Mr Greenspan is still saying "it's not my fault, guv. Not really."