It Wasn’t My Fault
Alan Greenspan insists on setting the record straight, proclaiming that his ultra easy monetary policies had nothing to do with causing the world financial crisis. This was about as convincing as his past statements that the housing bubble could not have been recognized until after it burst.
Alan, I previously suggested that you simply fade away to enjoy your large unearned government pension. Unfortunately, you continue to publicly deny all culpability for the financial Armageddon that you have created. Your latest interview with the Wall Street Journal has resulted in near unanimous derision of your statements; you should have taken my advice.
Even if one missed the headline (“The Fed Didn’t Cause the Housing Bubble”) and the byline (Alan Greenspan) on the op-ed in yesterday’s Wall Street Journal, there could be no confusion over authorship: That “Master of Garblements” and former Federal Reserve chairman was back to defend his legacy.
Greenspan lays out his case that the Fed’s easy money policies can’t possibly be to blame for “the U.S. housing bubble that is at the core of today’s financial mess.” It is long-term interest rates that determine “the prices of long-lived assets,” such as housing, he writes. And those rates, which stayed low as a result of a “global savings glut,” are out of the Fed’s control.
Greenspan’s op-ed is full of explanations, correlations and obfuscations. He defends himself against accusations by “my good friend,” Stanford economist John Taylor, who has argued that “monetary excesses” were the main cause of the boom and resulting bust.
No Mea Culpa
He also ignores the literature on asset bubbles.
“Greenspan is a student of history,” Kasriel says. “Surely he’s read (Charles) Kindleberger’s book on asset price bubbles.”
One element common to all bubbles, according to “Manias, Panics and Crashes,” is cheap credit. With so much cheap credit coming from abroad, Greenspan didn’t need to add to it.
And that’s the point. If he’s satisfied with his explanation of a savings glut — the idea that there was too much credit being supplied from the rest of the world — why not reduce the supply of Fed credit? That raises the price and reduces the quantity demanded.
Victim isn’t a role Greenspan plays particularly well, especially when it’s an attempt to exonerate himself from responsibility.
On the same day that his successor signaled dramatic policy changes that would see the Federal Reserve “take away the punchbowl” before inflating yet another asset bubble, radically altering the way financial market regulators operate in the process, former Fed chairman Alan Greenspan was readying yet another in a long series of op-ed pieces aimed at defending his legacy.
He didn’t cause the housing bubble, or so he says.
After yesterday’s commentary by David Leonhardt at the New York Times about how the central bank had been played like a fiddle by big financial firms who took on “excessive risk” knowing that the government would be there to bail them out, you’d have thought that maybe there would be some reluctance to go forward with the editorial.
Maybe what the smartest economists in the world thought was “sustainable growth” wasn’t sustainable at all and all that “risk taking” was just a way for bankers to enrich themselves.
Why Greenspan continues to try and defend his deplorable record as Fed Chairman is unknown. What is known is that the once powerful Sir Alan has seen his reputation steadily deteriorate to a level not much higher than laughing-stock. Here is what Greenspan had to say in his most recent commentary:
Perhaps it is time that Mr. Greenspan stops trying to quarantine discussion of the bubble and, at minimum, acknowledge that undermining the desired availability of subprime credits would have been an excellent idea (an idea Greenspan ignored). Astonishingly, and after yet another ‘don’t blame me for the bubble’ rant, Greenspan – almost – admits exactly this:
In other words, Greenspan knew the housing mania was supporting an unsustainable increase in consumption**, he knew that the subprime complex was ridden with fraud, and he knew that the Federal Funds rate was no longer dictating mortgage rates. But even with this knowledge Greenspan still did absolutely nothing because, in his words, it “would have been a huge effort”. Surely the exhausted Fed Chairman Bernanke, who has adopted innumerable new policy efforts since taking over, can not be impressed as Greenspan inexplicably reminisces about his effortless tenure as Fed boss.
Alan, give yourself a break and stop giving these foolish interviews; you can’t change the facts and no one believes your ridiculous statements. You were instrumental in causing the financial meltdown but you are certainly not a part of the solution. It’s time to just fade away.