Alan Greenspan’s testimony today before the House Committee on Oversight and Government Reform is likely to be quoted for years. Is there anyone in Washington with a better instinct for the jugular than Henry Waxman, the committee chairman, whose questioning evoked some of Greenspan’s most evocative comments? (I know George already quoted this material, but it’s worth quoting again.)

Greenspan: I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms… Waxman: In other words, you found that your view of the world, your ideology, was not right, it was not working. Greenspan: Absolutely, precisely. You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.

At another point, Greenspan said that his faith in Wall Street’s ability to regulate itself was based on his assumption that rational firms would not expose themselves to self-destructive risks. He also assumed that the markets would “properly price” risky bundles of subprime mortgages, so that investors worldwide would understand that they presented unusual risks. He continued, “The whole intellectual edifice…collapsed in the summer of last year.”

This is poignant, but also evasive. The system of unregulated incentives, compensation systems, and business practices Greenspan oversaw—or at least tolerated without comment—was riddled with obvious conflicts of interest. Why were collateralized debt securities bundling reckless subprime mortgages “mis-priced,” as Greenspan would have it? In substantial part it was because the for-profit ratings agencies, Moody’s and Standard & Poors, blessed them as sound products, largely on the basis of representations made to them by the banks that marketed the securities. Why did the ratings agencies fail to detect the true risks embedded in these securities—a failure of intelligence collection as grotesque as any preceding the invasion of Iraq? Not a complicated question: they were paid for their opinions by the very banks that sold the faulty products. McCain’s language is hard to argue with in this case—that’s structural corruption.