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Saturday 28 March 2009

Alan Greenspan had a brief moment when he seemed capable of being redeemed, when he admitted before Congress that he was wrong about his assumptions that firms could regulate themselves. I have yet to see another central figure in the banking meltdown admit error. But he has now gone back to trying to salvage burnish his reputation. Irving Fisher, arguably the most famous economist of the 1920s and a big backer of that era’s new financial and economic paradigm, was virtually impoverished by the crash and spent the next few years trying to figure out what went wrong. Although his contemporaries (save Keynes) saw him as hopelessly tainted, posterity has been more kind. Fisher’s debt deflation theory is now seen as a useful, perhaps even fundamental framework for viewing financial crises. But Greenspan when he was chairman of the Fed, and to this day, still wants to be liked. And that means he is still far too willing to enable those in power, no matter how destructive their pet plans may be. Yves Smith

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