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The buzzword of the day is distortion. In the Financial Times, Alan Greenspan returns to blast Dodd-Frank for creating "market distortions," and worse -- oh, much worse. Elsewhere in the paper, HSBC chairman Douglas Flint called for an expansion of the list of systemic banks in order to avoid "competitive distortions building up in the bank market." And in The New York Times, Neil Barofsky, the special inspector general of TARP, whose job ended today, offers as part of a litany of complaints about the program that "credit rating agencies incorporate future government bailouts into their assessments of the largest banks, exaggerating market distortions that provide them with an unfair advantage over smaller institutions, which continue to struggle." In a case of very strange bedfellows, Barofsky, like Greenspan, is also unhappy with Dodd-Frank. On the other hand, who listens to credit rating agencies anymore anyway? Maybe that's the distortion.
All three of these folks are talking their own book. The most intriguing, psychologically and ideologically, is Greenspan's FT column. After all, Greenspan was the Great Confessor, who admitted to flaws in his belief in the ability of markets, and financial institutions, to discipline themselves. That's a pretty fundamental admission. He has been blamed not only for the deregulatory impulse that opened up floodgates of leverage and risk (sometimes fairly, as on derivatives, sometimes not), but for keeping interest rates low for so long after the dot-com bubble burst, and for a general failure at the Federal Reserve to pay any attention to what was building up in the mortgage markets. As a capper, Greenspan has long been the most articulate champion of the belief that regulators are helpless in the face of an inflating bubble; and that they can really do little to combat it short of cleaning up the mess afterward. This is controversial and much debated. And while it embodies a kind of deterministic, or fatalistic, school of market regulation, there is enough truth in it to make one fear for the future. Indeed, if Greenspan is right about that, then the solution is not passivity but radical structural change. If you're worried about dying from Russian roulette, then the only real solution is to take the bullet from the chamber or toss the gun away. Change the game. 
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Bob Teitelman, editor in chief and a member of the company’s executive committee, is responsible for editorial operations of print and electronic products. Contact
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