Crazy Al said what?

In case you missed it, former Fed Chairman Alan Greenspan said this yesterday:

I made a mistake in presuming that the self-interest of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms. And it's been my experience, having worked both as a regulator for 18 years and similar quantities in the private sector, especially 10 years at a major international bank, that the loan officers of those institutions knew far more about the risks involved in the people to whom they lent money than I saw even our best regulators at the Fed capable of doing. So the problem here is, something which looked to be a very solid edifice, and indeed a critical pillar to market competition and free markets, did break down. And I think that, as I said, shocked me,"

Here is what I think Al missed: these guys weren't working with their own money. If the guys on Wall Street who ignored risk management were investing their own money, they would have behaved differently. Instead, they work in a system that hugely rewards big short term returns with massive bonuses. And, they will never have to give the bonus back. So, why wouldn't they take crazy risks with other people's money? The system is set up to reward that behavior, and the punishment when it comes crashing down is too small to counter the upside. In fact, they were acting in their own self-interest, just like Al's hero Ayn Rand would have wanted.