Greenspan's dilemma

Greenspan sees many casualties from crisis: report
Reuters
17 March 2008
LONDON (Reuters) - There will be many casualties from the unfolding financial market crisis, which will lead to a large-scale overhaul of international banking regulations, codes and risk management, former Federal Reserve Chairman Alan Greenspan said.
...
He added, however, that he hoped one of the casualties from the worst U.S. financial crisis since World War Two would not be the spirit of broad self-regulation within financial markets.

Although he said the Basel II international banking regulatory framework would almost definitely be revamped and financial institutions' financial models would need to be re-drafted, Greenspan warned against over-regulation.

So... it would be bad if "the spirit of broad self-regulation" were a casualty of the current mess, nevertheless, "the Basel II international banking regulatory framework would almost definitely be revamped..."
[Disclaimer: I have no idea what the "Basel II framework" is!]

With any luck, the term "self-regulation" will eventually be perceived by all as oxymoronic.

Yes, individuals can display "self-discipline"... but over and over we see that for-profit institutions are incapable of any meaningful "self-regulation". This should not be surprising. When the institution exists to make money, the bottom line is all that matters. There's nothing wrong with this, but it precludes voluntary restrictions on biz activities that may contribute in the short-term to the bottom line.

This is an appropriate role for govt regulation - to provide the "rules of the game" under which money-seeking institutions play. Ideally, these regulations, these rules of the game, will act to dampen external macroeconomic trends - to curb exuberance and to forestall panic.

Greenspan's comments display a level of cognitive dissonance rarely acknowledged by near-deified experts. He is ideologically invested in the so-called free market, but is honest enough to recognize that reality is agin' him. Faced with this dilemma, he can only spew internally inconsistent nonsense!

Sigh.

By the way, there is at least one strategic objective that govt regulations ought be tailored to achieve:

...promote the general welfare
[Preamble, U.S. Constitution]

Note: the general welfare - which seems to imply the welfare of us all - not just the welfare of Big Biz.

In policy discussions, it's good to start with a strategic objective in mind. The Preamble to the U.S. Constitution is a good place to look for our national strategic objectives!