The Greenspan Effect: Oops

"I made a mistake": words we never thought we'd hear from a central bank chief, past or present. In a dramatic grilling on Capitol Hill on Thursday, former Federal Reserve Chairman Alan Greenspan admitted that, oops, he may have placed too much trust in the self-correcting mechanisms of global markets. "I made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such that they were best capable of protecting their own shareholders," the 82-year-old ex-central banker was quoted by the Financial Times as saying. Never mind shareholders, a "humbled" Greenspan also admitted to failing "to anticipate the self-destructive power of wanton mortgage lending," the New York Times reports. Facing the House Committee on Oversight and Government Reform, Greenspan also acknowledged derivatives, an exotic financial instrument he "staunchly" opposed regulating in the 1990s, had gotten "out of control and had added to the havoc of today’s crisis," the NYT writes. And, in a statement that is sure to be dissected  for generations by Ayn Rand advocates, Greenspan reasons: "[T]his modern risk-management paradigm held sway for decades. ... The whole intellectual edifice, however, collapsed in the summer of last year.” The admissions of doubt by such an icon of the free markets was tough for some to sit through. As the Wall Street Journal opined: "[T]he media and Members of Congress will use Mr. Greenspan's testimony to impugn the very free market principles that the former Ayn Rand protégé has spent his life promoting. It was a painful spectacle to watch."

Not long after Greenspan's testimony, more evidence of the damage emerged. Foreclosure filings rose 71 percent year-on-year, according to the latest RealtyTrac figures. Looked at from a monthly perspective, though, the picture looks a bit more comforting. Foreclosure filings dropped 12 percent in September, compared to August, thanks to changes in state laws that allow homeowners to hang on a bit longer, the WSJ writes. The next round of bank bailouts, meanwhile, is expected to be announced as early as today or Monday, BusinessWeek reports, with the Treasury Department readying checks totaling $50 billion to $125 billion for ailing lenders. The biggest bailout recipient, AIG has already borrowed $90.3 billion from the government, "a sign that its need for cash has continued to expand," today's WSJ writes.

And overseas, the picture looks little better. The NYT writes the financial gloom is spreading to the developing world, threatening to create economic chaos and social unrest, forcing the West to consider dramatic emergency aid measures. "The list of countries under threat is growing by the day, and now includes such emerging-market stalwarts as Brazil, South Africa and Turkey," the newspaper writes.

All eyes will be on Vienna this morning, site of an emergency OPEC meeting. The price of U.S. crude opened the day steady at around $67, down 80 bucks from July's all-time high. On Thursday, pundits were mixed on the size of the anticipated supply cut, the FT writes, as Saudi Arabia was preaching restraint, fearing a significant drop in production would exacerbate the global economy. By this morning, it appeared the cut in supply would be at least 1 million barrels per day. According to Reuters: "[O]n Friday the group was considering two supply cut options. It could cut by one million barrels per day (bpd) now and review the situation at its next planned meeting in December." Alternatively, it could cut 1.5 million bpd immediately, the newswire reported, citing an unnamed delegate. It's unclear if a supply cut will make much difference. The macroeconomic picture is revealing significantly lower demand for crude. The WSJ reports that global shipping volumes have fallen off dramatically in recent months, the casualty of a consumer spending and manufacturing slowdown.

The tech sector as savior? OK, maybe that's overstating things, but hot on the heels of Apple's decent results comes Microsoft's report, which "doesn't disappoint" in the words of Business Week. Revenue and profits rose in the past quarter thanks to strong sales from its server and business-software divisions, writes CNN Money. And while the future isn't exactly rosy—Microsoft warned that sales and earnings for the second quarter and full year would be hit by the global economic woes—these "fiscal first-quarter numbers show the floor is not falling out from under global IT spending," notes Business Week.

Two flips this morning for the feeling-sorry-for-itself clean-energy sector. California's Ausra has become "the first of a new generation of solar thermal companies to open a full-sized electricity generation plant," the NYT reports. The admittedly small-scale 5-megawatt facility, located in central California, will generate enough electricity at peak hours to power 3,500 homes. Over in the U.K., meanwhile, the Guardian reports that carbon king Drax Group is embracing green technology with plans to build the country's first "large-scale biomass plants which burn plant-based materials." The power plants will produce some 900 megawatts of electricity—that's enough to supply 3 percent of the country's total needs.

Finally, business schools are filled with lessons about the demise of the railroad industry. But could it be an unlikely industry ready for a comeback? Billionaire Warren Buffett thinks so, BusinessWeek reports. Berkshire Hathaway has steadily acquired 18.5 percent of rail freight firm Burlington Northern Santa Fe, believing rail transport is primed for a revival with fuel prices crippling trucking firms. It's even being positioned as a "green" play. "Next year the company expects to deploy the industry's first hydrogen-powered locomotive," BusinessWeek writes.