According to the AP, Greenspan, 82, acknowledged under questioning that he had made a "mistake" in believing that banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions. Greenspan called that "a flaw in the model ... that defines how the world works."
Greenspan's error was that he failed to read Intro to Borenstein's Law.
In June, 2005, I was trying to explain why our criminal clients act in ways that are often ascribed to stupidity. I pointed out that intelligence and education was an unreliable barrier to risky behavior.
As I explained, people (not just our clients) act contrary to their best interests so often that it can be called the norm, not an aberration.
In fact, supposedly smart people (like Bill Clinton and Dick Nixon) commit reckless acts that satisfy immediate urges without considering the consequences.The drive for sex, money, power and other elemental desires often overwhelms caution, reason, or religious teachings (uh, abusing priests ... q.e.d.).
Greenspan's presumption that bankers would be restrained by their sense of financial responsibility because it was in their own self-interest to do so is naive, reflecting a misunderstanding of history and law.
Supposed conservatives recognize the wisdom of restraints on government and individuals imposed by the Constitution and criminal laws. Yet, they also urge limiting restraints on the so-called Free Market, assuming that the inherent structure of the marketplace will suffice.
Smart people like Alan Greenspan thus draw risky conclusions about human behavior --- not too different from the kinds of decisions our dumb criminal clients make, like assuming that their homies won't snitch them off when cornered by the cops.