Greenspan Insists He Was And Is The Maestro
Alan Greenspan, probably more responsible for the financial bust
than anyone else on planet earth, attempts to influence the history books by again (unsuccessfully) defending his record.
WASHINGTON — Former Federal Reserve Chairman Alan Greenspan Tuesday brushed back critics who contend that easy monetary policy fueled the housing bubble and ensuing bust, saying, “I respectfully disagree; they’re wrong.”
“I think there is a recalibration of financial history that I find very puzzling,” Mr. Greenspan said.
In his speech, Mr. Greenspan said he is starting to see “seeds of bottoming” in the U.S. housing market, though that isn’t reflected yet in home prices.
Alan, give it a rest, your final legacy will be based on what actually happened rather than what you say happened. The housing bubble that happened under your watch, which you couldn’t recognize, has devastated the economy.
The reckless lending at super low rates that fueled the housing bubble was viewed by you at the time as normal price appreciation due to a healthy economy. The sub prime lenders that you praised for providing financing to those who could not afford the mortgage payments are gone and their customers’ homes foreclosed on. The 50 to 1 leverage you allowed to occur at the investment firms and banks made a few very wealthy but subsequently caused economic misery for millions as they collapsed. Those who were thrifty and saved were rewarded with 1% rates on savings so that deadbeats could borrow money that could not be paid back. Your economic policies resulted in millions of people losing their jobs not only at Bear Stearns, Merrill Lynch, Citigroup, etc but at millions of businesses across the country. The list goes on…
Your prediction of a housing recovery is chilling news based on your own admission of your inability to see the bubble and collapse in housing until it was well underway.
Greenspan’s Remarks Reaction to Geithner’s Criticism of Fed Policies
The only one trying to recalibrate financial history is you, Mr. Greenspan. Perhaps you should read the surprising admission from one of your own that artificially low rates and poor Fed policy decisions are the root cause of the economic mess that you put us in.
The Earth stood still, the seas parted and a member of the U.S. political class admitted last week that the Federal Reserve helped to cause the financial meltdown.
The revelation came from Timothy Geithner last Wednesday with PBS’s Charlie Rose, who asked the Treasury Secretary: “Looking back, what are the mistakes and what should you have done more of?
Mr. Geithner: “But I would say there were three types of broad errors of policy and policy both here and around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk. People trying to get a higher return. That was just overwhelmingly powerful.”
Mr. Geithner went on to cite a lack of supervision over bank risk-taking and the slow pace of government response to the problem — both of which are now conventional wisdom. But the real news here is Mr. Geithner’s concession that monetary policy was “too loose too long.” The Washington crowd has tried to place all of the blame for the panic on bankers, the better to absolve themselves. But as Mr. Geithner notes, Fed policy flooded the world with dollars that created a boom in asset prices and inspired the credit mania. Bankers made mistakes, but in part they were responding rationally to the subsidy for credit created by central bankers.
Mr. Geithner’s concession is important nonetheless because before he moved to Treasury he was vice chairman of the Fed’s Open Market Committee that sets monetary policy. His comments mark a break with the steadfast refusal of Fed Chairmen Alan Greenspan and Ben Bernanke to admit any responsibility. They prefer to blame bankers and what they call the “global savings glut,” as if the Fed had nothing to do with creating that glut.
Mr. Geithner’s remarks are a sign of intellectual progress, and they suggest that at least some in government are thinking about their own part in creating the mess. The role of Fed policy should also be at the heart of the hearings that Speaker Nancy Pelosi is planning on the causes of the financial meltdown. We won’t begin to understand the credit mania and panic until we acknowledge their monetary roots.
Apparently, the only one still puzzled by the economic bust is the very same person who caused it.