Except for one rather important point, we agree.
The point is this: One must always assume human frailty/stupidity/greed when making large policy decisions such as the ones St. Alan of Greenspania made. Human nature in all its splendor and weakness must be taken into account for the people are indeed in large measure sheeple. This he did not do.
One cannot assume perfect rationality on the part of greedy creditors and prudence on the part of prospective debtors when deciding to make a large money supply available to all at near gratis rates any more than one can expect children to not avail themselves of a bucket full of candy when the only parental restraint is 'eat candy until you retch.'
One had to assume that with easy money and buckets of it to lend, creditors would lend to a bankrupt newspaper boy and that the newspaper boy would sign on the dotted line for he knew that never in his life would he so easily be handed such huge gobs of money. His view of things is perfectly rational: This is the good life I'm bering offered, it might not last, but what the hell, I'll enjoy it while I can. The greedy lender for his part is sending off the dicey mortgage for packaging into ABS deals no one understands but which produce bounteous incomes and fees for all involved. It may not last either but, what the hell, the bonuses and salaries are great.
No one had an incentive to be prudent. However, both sets of parties perceived incentives, rational from their perspective, to do exactly what they did. In the larger scheme of things, this was of course a disaster in the making which has now been made. However, so long as the money candy store is open, caution is thrown to the winds for short term gain.
If the world were full of prudent and rational people like you, no problems would arise from keeping the candy store open. But it is most assuredly not a world of prudent and rational folks who see beyond short term gain. Failing to take this into account was the signal error Greenspan made when he opened up the candy store for everyone to loot at bargain prices for debtors and at incredible profits for creditors.
The proof is in the making, Mq. Look at where we are now. |
