October 3, 2022

Greenspan Revisionist Babble

Debt Is The Greenspan Legacy

Alan Greenspan, former Federal Reserve Chairman, today expressed his concern about the level of the US national debt.

Sept. 16 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan said he’s worried that lawmakers will hamper U.S. central bank efforts to rein in its monetary stimulus, and that inflation might “swamp” the bond market.

The former Fed chief, who counts Deutsche Bank among his clients, also warned that the U.S. must rein in its “very dangerous” level of debt, citing the threat of increased issuance of Treasuries undermining the dollar.

Greenspan said one threat to Treasuries is the “very dangerous” level of U.S. national debt. “We’ve got to confront that issue immediately,” he said.

Mr Greenspan’s sudden concern about the buildup of the US national debt seem to imply that this situation occurred after his long tenure (1987 – 2006) as Federal Reserve Chairman.  The facts speak otherwise.  During the Greenspan era of easy money and easy credit, the US national debt had already spiraled out of control, increasing from approximately $1 trillion to $9 trillion.

Did Mr Greenspan not notice what was happening during his two decade reign at the Federal Reserve?  Mr Greenspan’s  current concerns about the explosion of US debt seem to be a disingenuous attempt at historical revisionism to obfuscate his central role in the creation of the greatest debt bubble in history.   For Mr Greenspan to suggest that he had nothing to do with fostering the current “very dangerous” level of US  national debt is like trying to argue that Hitler had nothing to do with World War II.

federal-debt-dollars

Mr Greenspan also commented on the potential risk of inflation:

“It’s the politics in the United States that worries me, whether the Congress will basically feel comfortable” with the Fed withdrawing its stimulus, Greenspan said in a broadcast to Tokyo clients of Deutsche Bank Securities Inc. today. He later said that “if inflation rears its head, it will swamp long-term markets,” referring to bonds.

Greenspan, speaking via videoconference from Washington, indicated that successor Ben S. Bernanke and his fellow Fed policy makers have until next year before inflation will present a danger.

Based on Greenspan’s past poor record of not recognizing the inherent dangers of overleverage, it is highly likely that he is now missing the big picture again.  We are now experiencing a post bubble credit collapse of epic proportions.  The deleveraging process that we are now witnessing will not unwind 20 years of reckless credit expansion in one year.   If Greenspan fears inflation, it’s a good bet that the real danger is the continuation of a deepening deflation.

Commenting on the need for a systemic risk regulator, Mr Greenspan noted that “I’m not in favor of a systemic-risk regulator because I don’t think it’s feasible.  I think we have to recognize that there are limits to what we can do.”  No argument with that statement Mr Greenspan.

The Cost Of Easy Money – $14 Trillion and Counting

Supervisory Insights – Where The Money Went

The FDIC released their Supervisory Insights report today which contains a detailed breakdown of the almost $14 trillion dollars committed by the Government to support the financial system over the past two years.   This huge commitment of taxpayer money can be viewed as the  cost of cleaning up after the Greenspan era of easy money.   The cost of the financial devastation that ensued from the easy money/easy lending era  far outweighs any illusory benefits that may have been gained.

The FDIC report easily recognized  the precipitating factors of the financial crisis of 2008.

The factors precipitating the financial turmoil of 2008 have been the subject of extensive public discussion and debate. The fallout from weak underwriting standards prevailing during a multi-year economic expansion first became evident in subprime mortgages, with Alt-A mortgages soon to follow. Lax underwriting practices fueled a rapid increase in housing prices, which subsequently adjusted sharply downward across many parts of the country.

Excessive reliance on financial leverage compounded problems for individual firms and the financial system as a whole.

One indicator of the gravity of recent developments is this: in 2008,  U.S. financial regulatory agencies extended $6.8 trillion in temporary loans, liability guarantees and asset guarantees in support of financial services.  By the end of the first quarter of 2009, the maximum capacity of new government financial support programs in place, or announced, exceeded $13 trillion.

And some of the old banking basics—prudent loan underwriting, strong capital and liquidity, and the fair treatment of customers—re-emerged as likely cornerstones of a more stable financial system in the future.

The obvious question is why were prudent loan underwriting standards abandoned in the first place?  Lenders, borrowers and regulators alike were all blinded by greed and the misguided belief that easy wealth was being created by the use of ridiculous amounts of cheap credit.  Now, at a cost of almost an entire year’s GDP, we know better – at least until next time.

Government Support for Financial Assets and Liabilities Announced in 2008 and Soon Thereafter ($ in billions)
Important note: Amounts are gross loans, asset and liability guarantees and asset purchases, do not represent net cost to taxpayers, do not reflect contributions of private capital expected to accompany some programs, and are announced maximum program limits so that actual support may fall well short of these levels
Year-end 2007 Year-end 2008 Subsequent or Announced Capacity If Different
Treasury Programs
TARP investments1 $0 $300 $700
Funding GSE conservatorships2 $0 $200 $400
Guarantee money funds3 $0 $3,200
Federal Reserve Programs
Term Auction Facility (TAF)4 $40 $450 $900
Primary Credit5 $6 $94
Commercial Paper Funding Facility (CPFF)6 $0 $334 $1,800
Primary Dealer Credit Facility (PDCF)5 $0 $37
Single Tranche Repurchase Agreements7 $0 $80
Agency direct obligation purchase program8 $0 $15 $200
Agency MBS program8 $0 $0 $1,250
Asset-backed Commercial Paper Money Market Mutual Fund
Liquidity Facility (AMLF)9 $0 $24
Maiden Lane LLC (Bear Stearns)9 $0 $27
AIG (direct credit)10 $0 $39 $60
Maiden Lane II (AIG)5 $0 $20
Maiden Lane III (AIG)5 $0 $27
Reciprocal currency swaps11 $14 $554
Term securities lending facility (TSLF) and TSLF options program(TOP)12 $0 $173 $250
Term Asset-Backed Securities Loan Facility (TALF)13 $0 $0 $1,000
Money Market Investor Funding Facility (MMIFF)14 $0 $0 $600
Treasury Purchase Program (TPP)15 $0 $0 $300
FDIC Programs
Insured non-interest bearing transactions accounts16 $0 $684
Temporary Liquidity Guarantee Program (TLGP)17 $0 $224 $940
Joint Programs
Citi asset guarantee18 $0 $306
Bank of America asset guarantee19 $0 $0 $118
Public-Private Investment Program (PPIP)20 $0 $0 $500
Estimated Reductions to Correct for Double Counting
TARP allocation to Citi and Bank of America asset guarantee21 – $13
TARP allocation to TALF21 – $80
TARP allocation to PPIP21 – $75
Total Gross Support Extended During 2008 $6,788
Maximum capacity of support programs announced throughfirst quarter 200922 $13,903

More on this topic:
FDIC Lists Root Cause For Failed Banks – Lax Regulation

Mr Greenspan, “There You Go Again”

Greenspan Insists He Was And Is The Maestro

Alan Greenspan, probably more responsible for the financial bust

Greenspan: "I didn't do it".

Greenspan: "I didn't do it".

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.

Geithner’s Revelations

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.

Greenspan Makes A Fool Of Himself – Again

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.

Greenspan Forgets Where He Put His Asset Bubble

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.

Alan Greenspan Still Hasn’t Got A Clue

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.

Apparently not.

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.

Greenspan A Glutton For His Own Punishment

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.