Former Federal Reserve Chairman Alan Greenspan writes in the Financial Times that "some financial institutions have become too big to fail as their failure would raise systemic concerns." He goes on to say,
"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."
Lest you believe that Greenspan has shed his Ayn Rand clothes as a result of the failure of our hitherto laissez faire financial system, consider Greenspan's conclusion:
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.
Wonderful. Let's leave it up to the private market to fix the mess that the private market created! George Soros calls this blind faith in unregulated commerce "market fundamentalism." The word choice is deliberate. When it comes to religion, faith is a positive force, providing healing and sustenance. Religious fundamentalism, however, is something altogether different. The analogy applies quite well to the free market.
Which brings us to our final point: Here we are debating the latest policy advice of a man whose policies as Chairman of the Federal Reserve arguably pushed us to the edge of collapse. This is symptomatic of what is still happening in many business circles: The same actors who got us into the current mess are now arguing that we should listen to them on how to get us out. Let us restate this: They are not arguing we should listen to them; they are assuming it. And we are, for the most part, buying into this notion.
Well, here is some advice for Mr. Greenspan and his ilk: Write an honest assessment of what you did wrong, what the conflicts of interest or misjudgments were that caused you to do wrong, and what you have learned from your mistakes. Then – and only then – will we start listening to your policy prescriptions.