Greenspan vs. Greenspan. And the winner is . . . .

Jon Hilsenrath at the Wall Street Journal:

The Greenspan Doctrine – a view that modern, technologically advanced financial markets are best left to police themselves – has an increasingly vocal detractor. His name is Alan Greenspan.

As Fed chairman, Mr. Greenspan was a frequent opponent of market regulation. Sophisticated markets, he argued, had become increasingly adept at carving up risk themselves and dispersing it widely to investors and financial institutions best suited to manage it.

The retired chairman has had to revise his views. In comments at a New York Economic Club dinner late Tuesday, the retired Fed chairman steered clear of much self-reflection on his role in the credit boom. But he did take a new swipe at the market's self-correcting tendencies and bowed his head to a new period of increased regulation.

"All of the sophisticated mathematics and computer wizardry essentially rested on one central premise: that enlightened self interest of owners and managers of financial institutions would lead them to maintain a sufficient buffer against insolvency by actively monitoring and managing their firms' capital and risk positions," the Fed chairman said. The premise failed in the summer of 2007, he said, leaving him "deeply dismayed."

Self-regulation is still a first-line of defense, Mr. Greenspan said. But after the financial collapse of 2007 and 2008, "I see no alternative to a set of heightened federal regulatory rules of behavior for banks and other financial institutions." He said hoped it would come in the form of tougher capital requirements for banks.