The human race has never found a way to confront bubbles. Alan Greenspan
It has been a few decades since Al Greenspan was a devotee of Ayn Rand, and it shows. I'm not much of a fan of Rand as I found her philosophic views tended to steam roll over the, in my view, important questions of consciousness and totally missed Hume's point on the failure of reason alone, however, she did have her moments. Her steadfast defense of gold as money is a case in point- a point obviously lost on Greenspan over the decades.
Greenspan's quote above is, in my view, true if one assumes that confronting a bubble means stopping it entirely thereby saving all participants from its nasty effects. The interplay of ignorance, deception and concentration of power with respect to money makes me doubt that we ever will find a way to avoid such problems, en masse. Of course, the same can be said for many of the ills mankind faces. As the saying goes, you can lead a horse to water but you can't make him drink (or in this case, think).
I wonder from whence Greenspan came up with this idea of saving everyone, which is a very collectivist conception. If freedom means anything it must include the freedom to fail as well as succeed. Perhaps Greenspan thought of himself as a monetary messiah.
However, there is another way to interpret the quote above. The human race did come up with a way to confront bubbles but the Central Bankers have been endeavoring to take it away- Gold.
Moving one's savings out of a financial system run amok and into Gold is a way to confront bubbles. Those, like me, who have taken this route have managed to preserve far more purchasing power than those who stayed in the system, despite the best efforts of the Central Banks. They apparently believe that truth is a matter of faith- the more people who believe a proposition, the truer it becomes.
Gold's ability over the millennia to retain purchasing power was, I believe, one of the key reasons it was chosen as a basis for western monetary systems as commerce emerged from Feudal Europe.
Although a gold standard will not stop bubbles from forming, its effects on the behavior of people in such systems tended to facilitate the termination of the bubbles which did form- making their duration shorter and the end result clean up faster. It did this by giving the people a way to both escape the system and vote on it at the same time, which in turn tended to keep the bankers on their toes. I doubt the derivatives mess would have grown nearly as large, thus making its clean up easier, had such a system been in place- a point worth considering whenever you read some commentary on the intractable problems appearing as the world tries to fix this disaster.
Greenspan's faith in the abilities of central bankers, who, as another of his mentors, Arthur Burns, warned in The Anguish of Central Banking, must operate in a political climate, is his blind spot in this regard as it leads him to the collectivist view that they should govern the many. I hope the human race learns once again that we did find a way to confront bubbles, we just threw it away.