“The Fed was promoting risk and subsidizing risk taking.”

Deal Book on the NY Times with this:

"The signals of the crisis were all around.”

That was the assessment of Theodore J. Forstmann, a founder of one of the earliest leveraged buyout firms, Forstmann Little & Company, who was interviewed recently on the “Charlie Rose” program. In the interview, which was shown last week, he talked about the causes of the current financial debacle and said the market turmoil was the worst panic he had seen in his lifetime.

Mr. Forstmann, who bought Dr Pepper and Gulfstream in a previous buyout boom in the 1980s, said he saw the latest financial collapse coming for a while.

The root of the crisis, he said, wasn’t greed or irresponsible regulators; rather, he put the blame on the “easy money” policies instituted under Alan Greenspan, the former chairman of the Federal Reserve. “The Fed had printed massively too much money,” the private equity executive said. “The Fed was promoting risk and subsidizing risk taking.”

This led to the creation of many “derivative securities that don’t create any real value,” he added."

Here's my response:

“The Fed had printed massively too much money,” the private equity executive said. “The Fed was promoting risk and subsidizing risk taking.”

This led to the creation of many “derivative securities that don’t create any real value,” he added.”

Excuse me, but where in this equation does human agency fit it. Are you an engineer? Was a gun to their head?

Promoting and Subsidizing don’t necessarily lead to lack of capital, too much leverage, poor loans, or anything else. It takes individual human actions to carry these events out.

Blaming the investments themselves, blaming the interest rates or money supplies as if they are a mechanical explanation of events, lets too many people off the hook.

The Fed made mistakes, but they were abetted by implicit and explicit government guarantees to intervene in a crisis. As well, various financial entities either committed fraud, were negligent, or were just plain stupid. I guess you could say that greed caused it, but you also need to see what allowed them to justify the risk over and above greed, which might well make an intelligent greedy person cautious.

The amount of see no evil, etc., coming out of some people’s mouths, people supposed to be intelligent enough to manage other people’s money, beggars belief, as well as our purses.

— Posted by Don the libertarian Democrat