THE "ORACLE" FAILED

Greenspan Concedes Error on Regulation

"Facing a firing line of questions from Washington lawmakers, Alan Greenspan, the former Federal Reserve chairman once considered the infallible maestro of the financial system, admitted on Thursday that he “made a mistake” in trusting that free markets could regulate themselves without government oversight. "

Although he defended the use of derivatives in general, Mr. Greenspan, who left his post in 2006, told members of the House Committee on Oversight and Government Reform that he was “partially” wrong in not having tried to regulate the market for credit-default swaps."

So they forgot about Moral Hazard

“I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,” Mr. Greenspan said.

Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

In his prepared remarks, Mr. Greenspan said he was in “a state of shocked disbelief” about the breakdown in the ability of banks to regulate themselves. He also warned about the economic consequences of the crisis, saying that he “cannot see how we will avoid a significant rise in layoffs and unemployment.” Consumer spending will decline, too, he said, adding that a stabilization of home prices would be necessary to bring the crisis to its end.

In his prepared remarks, Mr. Greenspan said he saw “no choice” but to impose legal quality requirements for certain types of securities, and added that other regulatory changes would have to be made.

But he still gestured toward his faith in free markets, however shaky it may have become. “It is important to remember, however, that whatever regulatory changes are made, they will pale in comparison to the change already evident in today’s markets,” he said. Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime.

A little bit late, meanwhile, nobody can foresee the consequences of this financial turmoil

BAD MEMORY....

Argentina Makes Grab for Pensions Amid Crisis

BUENOS AIRES -- Hemmed in by the global financial and commodities bust, Argentina's leftist government found a novel way to scrape up the money to stay afloat: cracking open the piggybank of the country's private pension system.

President Cristina Kirchner proposed to nationalize the private pension system, which has about $30 billion in assets, a move that would provide the government with much of the cash it needs in the short term to avoid default for the second time this decade. But analysts said the plan reinforces Argentina's image as a renegade in financial circles and represents a repudiation of the system of private pensions that has been in vogue in developing countries.

What about consumers?

Budget Gaps
Economic turmoil of recent months has also dealt budget gaps to some other nations, notably oil-exporters Venezuela and Iran, but Argentina is doubly hurt. Because the Argentine government stiffed international creditors as recently as 2001, any attempt to return to the international credit markets in the coming year would be almost certain to fail especially now that banks and investors are allergic to anything that seems risky.

OPEC wanna cut the production

The government told Argentines its move to nationalize private pension funds was aimed at protecting investors from losses resulting from the global market turmoil. President Kirchner said in a speech: "The main member countries of the [Group of Eight] are adopting a policy of protection of the banks and, in our case, we are protecting the workers and retirees."

Protecting? but Is it not better to diversify? buying safe securities

Is this a good choice? What is behind of it?

But economists said the motive is to provide the government with about $5 billon in annual pension contributions that it needs to plug a gap in the financing next year and avert a second debt default. "They were in a tight situation and this was an accessible source of funds," said Buenos Aires economist Aldo Abram.

Ahh that's it

Opposition leaders vowed to contest it. Opposition leader Elisa Carrio vowed to resist, saying, "The government measures aren't designed to better the retirement system but rather to plunder the funds of the retirees." One pension-fund head suggested that contributors inundate the government with lawsuits. Even if they don't heed that call, the move also is expected to face legal challenges.

The same history

"With the [latest] announcement, the custom of violating the rules of the game has been repeated, which deepens the lack of confidence," political analyst Rosendo Fraga wrote in the Buenos Aires daily La Nacion.

Bye Bye Fully Funded?

The pension system in places like Argentina and Chile is much more free-market-oriented than in the U.S. The U.S. Social Security system is run by the government and is "pay as you go," meaning the government uses contributions from current workers to pay retirees. Latin American countries like Chile decided to give workers the option of creating individual retirement accounts run by private companies where workers would be forced to set aside money for their retirement - similar in some ways to a 401(k)-type account in the U.S.

Bernanke Is Fighting the Last War
"Everything works much better when wrong decisions are punished and good decisions make you rich."

By BRIAN M. CARNEY (Wall Street Journal)

Most people now living have never seen a credit crunch like the one we are currently enduring. Anna Schwartz, 92 years old, is one of the exceptions. She's not only old enough to remember the period from 1929 to 1933, she may know more about monetary history and banking than anyone alive. She co-authored, with Milton Friedman, "A Monetary History of the United States" (1963). It's the definitive account of how misguided monetary policy turned the stock-market crash of 1929 into the Great Depression.

Since 1941, Ms. Schwartz has reported for work at the National Bureau of Economic Research in New York, where we met Thursday morning for an interview. She is currently using a wheelchair after a recent fall and laments her "many infirmities," but those are all physical; her mind is as sharp as ever. She speaks with passion and just a hint of resignation about the current financial situation. And looking at how the authorities have handled it so far, she doesn't like what she sees.

Now, Alan Greenspan has issued an epilogue to his memoir, 'Time of Turbulence,' and it's about what's going on in the credit market," Ms. Schwartz says. "And he says, 'Well, it's true that monetary policy was expansive. But there was nothing that a central bank could do in those circumstances. The market would have been very much displeased, if the Fed had tightened and crushed the boom. They would have felt that it wasn't just the boom in the assets that was being terminated.'" In other words, Mr. Greenspan "absolves himself. There was no way you could really terminate the boom because you'd be doing collateral damage to areas of the economy that you don't really want to damage."

Ms Schwartz adds, gently, "I don't think that that's an adequate kind of response to those who argue that absent accommodative monetary policy, you would not have had this asset-price boom." Policies based on such thinking only lead to a more damaging bust when the mania ends, as they all do. "In general, it's easier for a central bank to be accommodative, to be loose, to be promoting conditions that make everybody feel that things are going well."

Fed Chairman Ben Bernanke, of all people, should understand this, Ms. Schwartz says. In 2002, Mr. Bernanke, then a Federal Reserve Board governor, said in a speech in honor of Mr. Friedman's 90th birthday, "I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

"This was [his] claim to be worthy of running the Fed," she says. He was "familiar with history. He knew what had been done." But perhaps this is actually Mr. Bernanke's biggest problem. Today's crisis isn't a replay of the problem in the 1930s, but our central bankers have responded by using the tools they should have used then. They are fighting the last war. The result, she argues, has been failure. "I don't see that they've achieved what they should have been trying to achieve. So my verdict on this present Fed leadership is that they have not really done their job."

THE "DOWN" JONES

While the stock markets indexes continue falling, in the morning, Bush addressed to the American People. He said that urges financial markets and the broader American public to remain calm in the face of the global financial meltdown.

"we'll get through this together."

Central Banks Cut Rates World-Wide





Esto debe ser historico. En una operacion coordinada el FED, ECB y el Bank of England han reducido sus tasas de interes de referencia. El "Federal Funds Rate" ya tenia una tendencia decreciente desde el año pasado ante las expectativas de recesion, causando la depreciacion del dolar. Desde entonces el FED habia optado por una politica mas flexible y/o mas discrecional, y abandonar la etiqueta de "implicit targeter". En cambio, el ECB y el Bank of England han abandonado la rigidez que da ser un "explicit targeter" para buscar mas flexibilidad.

Tambien China, Canada, Suiza y Suecia se unieron a este "global cut". Parece que los tres ultimos han abandonado tambien el "inflation targeting club"

Paulson after Bailout's rejection