The clouds part, and he descends, like Spider-Man, into our midst again: Alan Greenspan, philosopher. A chorus of bankers, home and abroad, hums in the background like the Mormon Tabernacle Choir. Congress scurries about. How do you turn off the lights? In the Financial Times, the now-aged former greatest-central-banker-in-recorded-history, last heard confessing to flaws in his thinking, takes it all back in an op-ed. He decries Dodd-Frank, which he fears will create the greatest financial distortions since Richard Nixon's price controls. (Greenspan would know: He worked for Nixon.) Banks will yank debit cards; foreign exchange derivatives will flee New York, presumably running into bankers escaping London. But those are details, schmetails. The heart of Greenspan's essay is the belief that regulators have no idea what they're doing. Comprehension is impossible; oversight absurd. Modern global, interconnected finance is "irremediably opaque." Forecasters are always wrong; economists aren't physicists. "No one has such skills," he declares. (Greenspan should know: He was once an economic forecaster.) Fortunately, opaque finance works just dandy (except for 2008, he whispers, parenthetically). He summons the invisible hand, the division of labor, globalization, technology, then suggests: We are fools on a darkling plain. The world that exists, powered by its giant reactor of finance, is the best of all possible worlds.
Many have long suspected that Greenspan harbored such sentiments; there was that Ayn Rand business after all. But for a man long afflicted by Howard Cosell-like logorrhea, his op-ed is a gem of concision and clarity: Like sinners in the hands of an angry god, we need to embrace predestination, determinism, fate. The mean-spirited may argue that in declaring regulation and forecasting impossible, Greenspan is defending his own Federal Reserve tenure by obliterating what's left of that legacy. This is where complications begin. If Greenspan is so convinced of the depths of human folly when it comes to markets, and Greenspan himself is human, why should we believe him? If oversight is impossible (and there are miles of gray between white and black on that subject), then his correct rate calls were dumb luck. All those mind-numbing analyses of rail-car loadings and home heating oil prices were wasted. He might as well have been soaking in the tub tossing darts. As for regulation, well, since he did so little, perhaps he's justifying his own failures there.
You don't have to believe Dodd-Frank is divinely inspired, or even effective, to find these ideas disturbing. Greenspan takes us to a place we suspected existed, but that few regulators -- and fewer politicians -- publicly admit. For all the libertarian murmuring, most Americans accept the need for some protection against markets that may upend their lives. The notion that an entity is growing within the body politic that we can neither understand nor anticipate is hard to accept. But Greenspan goes further. He does not just believe regulators are blind. He has taken the random walk and applied it broadly. In a sense, he is urging us, when it comes to regulation, to adopt an indexing strategy. In the Greenspanian moral universe -- a chilly place -- symptoms of regulatory interference emerge as "market distortions." He sees them everywhere. That makes some sense, since the hand of the state (and what's the Fed if not a clammy hand) has been stirring finance for decades, drawn by regular breakdowns (not just 2008) and, yes, the desire to influence outcomes. Certainly, since the '30s, markets have been aggressively shaped by the state; markets without states are as rare as states of nature. And so it's difficult to tell where the invisible hand ends and "distortions" begin. Again, how Greenspan can see distortions in utero but comprehend nothing else is beyond me.
For all the posturing of Ayn Rand's supermen, Greenspan's late philosophy is irremediably pessimistic and passive. The danger of a market of indexers is that it lacks intelligence, like a democracy of morons. What's a price mean? How does it reflect value? The same applies to regulation. Regulators may be bureaucrats, but they radiate, albeit weakly, a tragic heroism. They are imperfect, human, flawed. The complexity of the world often eludes them. They must make calls, or noncalls, that will inevitably look wrong. But they must try nonetheless, and sometimes they will succeed. It is part of the plight of regulators that obvious "successes" are as obscure, and as prone to sophistry, as "distortions." Indeed, when the level of incomprehension rises so high, politicians and regulators feel compelled to reduce that complexity to a place where they can understand what might occur, perhaps at the risk of affecting what Greenspan calls "today's levels of productivity and standards of living." Like a value investor, you have to believe regulation will generally work out in the long run. Otherwise, the way ahead leads to madness.
NBGI Private Equity appointed food and drinks industry veteran Tim Kelly as a senior adviser. For other updates launch today's Movers & shakers slideshow.
Blackstone Real Estate and DDR divide 46 shopping centers in a $1.46 billion deal. More video