Greenspan legacy thoroughly chewed on now

[Biggus Piggus]

http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html?_r=3&hp=&oref=slogin&pagewanted=print

A good number of people were critical of Alan Greenspan many years before now.  Now it is becoming mainstream to recognize his failures.

The big flaw in his thinking, my view, and the big problem with putting Wall Street people in charge of the SEC and Treasury:

Greenspan, Cox et al operated on the assumption that traditional Wall Street investment banks were motivated by normal capitalist pursuits.

But the Wall Street banks were motivated by hiding one thing (their old business model was broken) with another thing (ginning money off hedge funds and synthetic financial instruments).

The Wall Street banks were not operating in a capitalist way.  They were crooked.

[Niels Boar]

During his book tour Greenspan said he supported the Bush tax cuts because he was afraid that the US Government books were about to turn from deficit to surplus.  I can understand the problem with that, but "Don't count your chickens..." comes to mind.  It sounds like irrational exuberance now.  The government could use an extra trillion or two under the mattress at the moment. 

Ironically I saw that interview right after hearing Nassim Taleb trash economists when discussing The Black Swan.  Taleb basically said he didn't trust economists to predict that the sun would rise in the east.  I thought that he was overly dismissive, but he looks like the oracle now.

[Ash]

Taleb is correct to an extent. The models economists use to predict what is going to happen get unrealistically complex very quickly. THere are also a large number of gotchas and special situations.

[Masshog]

Greenspan had a legacy? 

[Masshog]

I know a lot of economists... fact is I know more economists than anyone has a right to... a lot of them are great guys, but the vast majority of them are terrible at what they do.  There are a few good one, and a very small subset that understand how to translate economic information into trading/investing profits. 

[Niels Boar]

Taleb is correct to an extent. The models economists use to predict what is going to happen get unrealistically complex very quickly. THere are also a large number of gotchas and special situations.

You can see the influence of chaos theory in Taleb's views.  He's mentioned Mandelbrot as a mentor.  Some chaotic systems actually tend to remain in a relatively stable equilibrium to a point.  However, they have the capacity to change to a radically different equilibrium state with a small change in input.  Thus, don't trust forecasts, especially about the future, and don't screw with things that are too complex for you to understand.