You may remember Alan Greenspan as the Ayn Rand-loving Fed Chair whose free-marketeering approach to central banking helped unleash asset bubbles and the original Too Big To Fail problem, the Greenspan put. Last fall, he even accepted some blame for all that, explaining that his ideology failed him. Now, he's saying something else that should also be obvious:
Greenspan said in an interview that he did not think the Fed was suited to policing lending abuses because of its focus on broader issues, but he added, "I'm not sure anyone could have done it better." He said the administration's plan to create a consumer protection agency was "probably the right decision."
The Fed has in fact done a terrible job policing consumer finance, and a new agency with that task as its number one priority is needed. While I don't expect the financial interests opposing the CFPA are going to come around on Greenspan's say-so, his statement does help disarm their exaggerations about unnecessary government interference. If Greenspan can admit it that more regulation is necessary, and Richard Posner can become a Keynesian, then everyone should be able to reconsider their biases in the wake of the crisis. Especially the people who caused it.
(Incidentally, this whole story on the Fed's failure to regulate consumer lending is worth a read.)
-- Tim Fernholz
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