I missed yesterday's installment of this two-part series -- I invite anyone who read it to post a summary in the comments section -- but today's was an interesting take on the Chairman's part in redefining the relationship between government and financial markets.
In addition to thwarting the post-Enron impulse to regulate derivatives, Mr. Greenspan has helped remove Depression-era barriers between the banking and securities industries and has blessed mergers creating banking behomeths. He has implored regulators to keep their hands off hedge funds and other markets that are replacing banks as financiers of American business. Although the Fed is a major bank regulator, it has become a less intrusive one under Mr. Greenspan.
His regulatory approach is summed up by the "wooden tennis rackets" philosophy.
[Former Clinton Treasury Secretary Robert] Rubin's notion, that governments should constrain markets, "was like saying tennis was a better game with wooden rackets," says Lawrence Summers, president of Harvard University and previously Mr. Rubin's deputy and successor at the Treasury. Mr. Greenspan would prefer rackets made with advance alloys that delivered better shots even if they were occasionally wild.
The proof is in the pudding, one might argue, which the Chairman does.
"Even the largest corporate defaults in history -- Worldcom and Enron -- and the largest sovereign default in history -- Argentina -- have not significantly impaired the capital of any major U.S. financial intermediary, Mr. Greenspan said in a speech last month. Banks inthe 1980s and early 1990s, by contrast, were crippled by bad loans to developing countries and real-estate developers. The resulting credit crunch hobbled the economy.
This an interesting article, that I highly recommend.