I agree with Greenspan, in part

In today's WSJ, former Fed Chairman, Alan Greenspan, argues that the root of the mortgage crisis lies back in the aftermath of the Cold War, when the economic ruin of the Soviet Bloc was exposed with the fall of the Berlin Wall. Following these world-shaking events, market capitalism quietly, but rapidly, displaced much of the discredited central planning that was so prevalent in the Third World. I agree with Mr. Greenspan, in part- the fall of communism, in my view, set the stage for our current mess- a stage, managed, for a time, by Mr. Greenspan.

It seems to me no mere coincidence that Darwin's Theory of Evolution emerged during a period when faith in the virtues of capitalism was, at least among the wealthy, strong. Both views are based on faith in the virtues of competition. The idea of natural selection through competition is equally at home in discussions of both evolution and capitalism.

Evolutionary biologists argue that environmental changes which reduce competition, such as the elimination of predators, will lead to increases in population. But this rise in population often sets the stage for a "culling of the herd" as new limiting factors (and there are always limiting factors) come into play. In other words, competition strengthens competitors and the lack thereof weakens them.

In our case, the (in hindsight, obviously, temporary) elimination of competition between the Communist block (now market based Russia and China) and the West reduced pressure on economic policy makers to get it right, i.e. to try to avoid the nasty aftereffects of an investment bubble, by, quoting ex-Fed Chairman William McChesney Martin Jr., taking away the punch bowl just when the party gets going.

Even Mr. Greenspan held this view in the early going as evidenced by his pre-emptive strike against inflation in 1994.

As the 90s progressed, however, western economic policies began to be viewed as unalloyed goods (promoted by, inter alios, Francis Fukuyama in his The End of History), markets, even manipulated ones, were seen as never getting it wrong and the desire to avoid investment bubbles was replaced by the view, notably promoted by Mr. Greenspan himself, that a better policy was simply to clean up the mess resulting from constantly refilling the punch bowl.

I suspect easy Al never threw a party for some of the people I know, who won't leave until all the booze is drunk. Then again, he did throw just such a party which has yet to truly end....and the credit addicts are in dire need of yet another fix.

This lack of fear resulting from reduced competition, was, I suspect, a factor which led the US to unwind some of the depression-era banking regulations, such as Glass-Steagle. Faith in the virtues of competition was replaced by faith in the virtues of concentrations of power, in many regards.

I suspect that, after the full effects of the current crisis manifest, we might once again discover the virtues of removing the punch bowl before the party gets going, and thus keeping our hang-overs small.

Until that time arrives, I'll keep a tight hold on my Gold.