Greenspan's critics were bound to see his comments as self-serving and they will pin the blame on him for the current financial crisis. If he doesn't accept personal responsibility, how does he explain the crisis. His critics don't address my concern: why do market forces fail to curb excesses in the financial intermediation?

A Wizard of Oz?

Alan Greenspan, whose public esteem has suffered the most dramatic reversal of anyone in recent history (Dubya not excluded), has a reflective but unapologetic commentary in today's Financial Times (27 March 2009)

He is an unrepentant free-marketeer but he cannot explain the recent collapse. He says the market is good at calculating risk but it has failed to foresee the current crisis. He calls for better regulation of the financial intermediaries but he warns against over-regulation at a time when the goal must be to get credit flowing, so take your pick.

I think the problem for Greespan and other free-marketeers is that they think of financial services as being part of the service industry, like restaurants or dry-cleaners, i.e. they offer an economically useful service and the economy will tend to benefit from an expansion of the financial services.

Greenspan is forced to accept now that some regulation is required (he was a very reluctant bailiff at the Fed), but he thinks the problems are on the margins i.e. that free market forces will normally keep banks etc. from behaving irresponsibly.

I think that the system of credit is inherently volatile and, left to their own devices, banks etc. will always tend to behave irresponsibly. This tendency was exacerbated in recent years by factors such as (a) distorted incentive systems, (b) US trade imbalance creating vast pools of dollars abroad (c) almost zero returns on T-bills leaving investment funds seeking any home that offered a decent return, (d) unregulated hedge funds, (e) .

These and other factors increased the opportunities for bad debts developing to catastrophic levels but, absent all exacerbating factors, a credit crisis would still develop over time. Those who are trying to restore the system of credit should realise that it is not just a matter of clearing out bad debts (and bad management), there needs to be a fundamental change which would restore our faith in the financial system.

Greenspan's spiritual home, the Ayn Rand Center, is blaming it all on government and especially on the Fed!

Welcome

After six months of posting to various chatboards about the Irish economy and the state of the nation, I want to bring these thoughts together in a single space and to give more depth and variety to these ideas.

I began blogging to alert people to the gravity of the economic crisis we face. Until this week i.e. the end of March 2009, it was clear that the Government did not have the full measure of the crisis. Most obviously, they were underestimating the calamity that has befallen the public finances. They also failed to grasp the nettle which is Irish banking.

More broadly, the Government have been unable to provide leadership which would give Irish people a sense of direction and hope. Fianna Fail is hopelessly compromised by its links with the construction and property boom which have exacerbated the damage that the global crisis was bound to inflict. There is an even more fundamental difficulty for the Government: FF and the Greens have no shared philosophy which is to say that FF have no philosophy other than hanging onto power and the Greens abandoned theirs as soon as it came into contact with reality.

I hate the notion of economic determinism but the economic crisis will drive politics for the foreseeable future and Irish society will be shaped for generations by the cataclysm which is now unfolding.

So this site is my answer to the age-old question: whither Ireland? It will look for answers outside this island and it will try to offer ideas to build a future where money and credit are not the dominant forces in our lives.