A more analytical understanding of Greenspan:
First, If you read enough of Greenspan, he tried to master the processes by which businesses actually made decisions, to a degree that few economists ever attempt. He was intimately aware of the daily needs and habits of business. He was intimately informed in a way few others seem to have been.
Second, he actually believed the new devices for distributing risk (along with the formulae of the quants) would work as prescribed.
Third. like most people of the Regan/Thatcher era, he was trying to counteract socialist influences in society. They had very clear memories of the pre-johnson era and also had the unfortunate experience of living through the 1970’s, which was about as depressing and hopeless as the times we face today. It was from this contrast that they took their motivation. We forget that in retrospect, these people were trying to use monetary policy to reconstruct prior libertarian values. They hoped to rebuilt a society of individual responsibility (and ownership) using a tool which accomplishes the opposite, even if they felt using that tool was acceptable if it was only used for the short term.
It is in these three errors that Greenspan built his house of cards: first, business can use credit to privatize wins and socialize losses, and did so. Deep knowledge of business is good, but deeper knowledge of human nature is even better.
Personally I am not sure this device to retrain people out of socialistic beliefs would not have worked had the state provided direct liquidity into competitive innovation in the Indian model rather than general liquidity, and regulated banking such that all originated loans must remain with their originators. In effect libertarian values need to come from somewhere. They are not terribly natural to man. And liberty has always, throughout history, been the objective of a minority. (PLease don’t beat on me for advocating state intention, i”m not attempting to do so, only explain what would have been possible in context.)
Second, the new devices and formulae were erroneous, and for commonly stood austrian reasons: the quantitative content of these devices is inseparable from the individual knowledge of the loan’s originator. Very little debt is predictable under duress, and it cannot be aggregated, because fundamentally all credit consists of unique categories, because these categories are determined by knowledge only available to the originator.
Third, the influence of these people on the momentum of the bureaucracy, was insufficient. And that is the real Misesian/Rothbardian problem. To enact such a thing at scale would require political force actively despised by the field’s advocates. Describing an ideal state of affairs is an impressive and important research program. It has yielded most of the answer we are looking for in solving the problem of economic, political and social theory. People in our libertarian camp, have not supplied yet a sufficiently POSITIVE argument for political economy. Hoppe is closest. Hayek tried desperately. But Mises, Hayek, Parsons, and Popper all failed to provide a sufficiently positive argument. It certainly appears that Keynes did find a sufficiently positive argument even if it was an erroneous one. (Although the debate is open on whether he would have approved of how his ideas were used.)
But more importantly, libertarians are a minority. We have always been a minority. And we are likely to continue to be one. We have a philosophy of the entrepreneurial class. And as a class philosophy it is an insufficient philosophy as currently constructed. That is, unless we understand that in this division of labor we need at least three philosophical frameworks: one for each class.
As such, while Greenspan failed, I don’t blame him for failing, any more than I blame Rothbard, Mises, Hayek, Popper or Parsons for failing.
It is becoming clear that the dominant political structure of the future consists not of democratic capitalism, nor social democracy, but of totalitarian capitalism, because only totalitarian capitalism can concentrate capital in sufficient quantity and rapidly in time to maintain the status of elites in one nation against those of others.
And if we think that there will not be political elites who profit from their position, then we do not understand the history of mankind.