Greenspan's Got a Capital Idea

Yves Smith:

Greenspan Says Banks Need More Capital, by Yves Smith: You have to give former Fed chairman Alan Greenspan credit for having no shame. Well, he did once look a bit rattled before Congress for about five minutes and 'fessed up it never occurred to him that people would be so greedy as to run companies so as to leave burned hulks in their wake.

Did he utterly miss reading the news during Enron and the 2002 accounting scandals?

Greenspan also made life difficult for Bernanke in early 2007 more than once. Indeed, prior to Greenspan, no former Fed chairman made frequent pronouncements. This is unseemly, but having a sense of propriety went out of fashion in America some time ago.

Now Greenspan is saying the banks are not OK (if they need a lot more capital, then by definition, they are undercapitalized now) when the powers that be have a full court press on to present precisely that image. And whose responsibility might it be that the banks are in such sorry shape? Might the Greenspan Fed's extreme laissez faire stance have had a wee bit to do with it? ...

This also goes along with his self-exonerating claim that the housing bubble was not caused by Fed policy under his watch, and that the problems could have been avoided if financial firms had larger capital buffers (and, according to Greenspan, all that is needed in terms of regulation is larger reserves against losses, no other regulation is needed, his often noted surprise at the failure of deregulated markets is that firms did not accumulate sufficient reserves on their own).

Comments

[John Grimes:]

Greenspan's view is similar to a state putting up speed limit signs, but then not enforcing them. Sooner or later those so inclined will completely ignore the signs.

May 21 06:08 AM

[kingaj12:]

Do you think that Greenspan just got burned when one of his bubble creations infected a major industry?

It seems that up till the early 2000's he had been running a closet Keynesian policy for the benefit of Wall Street. So long as the ramifications were contained to financial assets who would care?

May 21 09:32 AM

[JK Corcoran:]

Perhaps the Treasury, concerned with the sustainability of the economy, promulgated their policy which had an effect in expanding the housing bubble, but the real culprits were the policies legislated starting with Carter and the CRA requirement for banks. Frank and friends exacerbated the "lend to people who cannot repay" CRA policy by requiring a portfolio at Fannie and Freddie of 50% CRA loans. This triggered - as most legislation does - the unintended consequence of Wall Street finding a way to profit. So, they set up the now infamous tranches for Alt A loans, bought them up and turned them over to investors, then boom! Yes, of course, Fed policy may have contributed. Frank and friends instigated the process.

May 21 11:05 AM

[Ferdinand E...:]

Funny isn't it, how everybody is putting the bad-mouth on Sir Alan. One thing though I think you should know: he knew more about energy than a herd of academics.

May 21 12:36 PM