Greenspan: Another Crisis Is Inevitable

It's not clear which is worse when it comes to former Fed chairman Alan Greenspan:

1. That he was head of the central bank and left such a mess
2. That, in retirement, groups continue to invite him to speak
3. That the media covers these speeches so thoroughly
4. That there isn't more outrage about items 1, 2, and 3 above

The most recent examples of items 2 and 3 come via this report at CNBC.

Another global financial crisis is inevitable because human nature always reverts to "speculative excesses" during a period of sustained prosperity, former U.S. Federal Reserve Chairman Alan Greenspan said.

"The crisis will happen again but it will be different," he told BBC Two's "The Love of Money" television series. "That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that that will continue," he said.

Greenspan, speaking to the BBC to mark the first anniversary of the fall of U.S. investment bank Lehman Brothers, said Britain will be hit worse than the U.S. by the subsequent worldwide financial crisis and global recession because it has a globally-focused economy.

There is almost always a caveat in these reports and this one is no different, noting that "his record is under scrutiny", but that just doesn't seem like it's enough anymore.

Comments

[athena:]

So funny! thanks!

Sep 09 01:42 PM

[NUCLEAR1929:]

greenspan left at the right time

Sep 09 01:56 PM

[Tony Petroski:]

From the article:

It's not clear which is worse when it comes to former Fed chairman Alan Greenspan:

1) That he was head of the central bank and left such a mess
2) That, in retirement, groups continue to invite him to speak
3) That the media covers these speeches so thoroughly
4) That there isn't more outrage about items 1, 2, and 3 above

This is easy, the answer is 1.

Sep 09 02:31 PM

[John Galt:]

When I read this it just makes me think that "human nature" is a pretty weak excuse from the Fed for crisis. I mean, if "human nature" and speculative excess is the real cause for crisis, then it can't be the Fed setting the price of money right? Blame somebody else to take the heat off me!

So the Fed is designed to bring "stability" to markets, by setting an artificially high price of money during boom times, and an artificially low price of money during weak times. Throw in setting the money supply etc., and these quasi government workers are rigging our economy. These PHD's from district member banks and the Fed Chairman know more than thousands of decentralized individuals responding to price mechanisms? Or so they say. PS, it sounds a little socialist don't you think? Having these national string pullers behind the scenes who know what's better for you than you do?

When the Fed as an institution fails, and we have big market swings, then they say that "human nature" is the cause. But wasn't their job to bring stability? Didn't they fail?

I suppose you could say the economy would have been worse off if it weren't for Greenspan/Uncle Ben, but I don't think anybody really believes that.

Abolish the Fed!

Sep 09 02:37 PM

[tripleblack:]

Looking at all the creaky, wrong-headed, antique, FDR-era economic theories still sitting on their thrones in DC...

Its a whole legion of exploded theories, embodied in freddies, fannies, and alphabet soup grannies of all kinds.

Granted, the Fed is certainly among them, and something that should go in the garage sale, but its hardly alone.

Sep 09 02:46 PM

[Dave Wrixon:]

Is there any chance of extraditing him? He is driving me nuts!

Sep 09 02:49 PM

[I need more...:]

Another crisis? You mean after the one we're in presently?
Oh wait, the Beige book report says we're out of recession, whew.

Sep 09 03:17 PM

[Mr. Ed, Jr.:]

Greenspan says that at sometime in the future there will be another financial crisis.

Well, that is a very bold prediction indeed.

But he ain't no Miss Cleo.

Sep 09 09:48 PM

[Sober Realist:]

WE'RE A LONG WAY FROM CLEANING UP THE MESS HE WAS INSTRUMENTAL IN CREATING!

Sep 09 11:16 PM

[derryl:]

No doubt human nature is the psychological root of "speculative excesses" as Greenspan says but the Fed is supposed to be the adult in the room who minimizes the damage caused by the kids' party. So first the Fed should be minimizing the scale of the party by hiking rates as soon as asset prices start increasing a few points above their growth trendline. And second the Fed should be punishing the kids who did the damage by making them pay for it and help clean up the mess.

Simon Johnson at the Baseline Scenario has an article on SA today advocating doing just that, changing bankers' incentive structure so that they still get rewarded for success but they also get punished for failure just like any other failed business person suffers for his/her mistakes. In the linked essay Johnson and his coauthor describe how the Fed has been spoiling its kids--the banks who own the Fed--by saving them every time they screw up. And guess who gets to pay for the cleanup? Mr and Mrs Taxpayer of course.

With this "can't lose" incentive structure the kids have become risk addicts because for them there's only upside and the downside is always passed off to somebody else. So it's become like a nightmare "Bankers Gone Wild" video with the US financial house in shambles and the goodly old Fed coddling the kids who are causing the wreckage.

I agree with Greenspan. As long as this perverse "can't lose" incentive structure for financial risk taking remains in place, there will most certainly be another crisis.

Sep 10 12:03 AM

[TeresaE:]

Wow, Mr. Greenspan needs to get himself a 900 number business. He could rake it in with predictions like that.

His prognosticating needs work though, "in the future" is going to happen much quicker than geniuses such as him think.

They didn't see the last mess coming and they are completely ignoring the one being created in Washington & Beijing now.

Sep 10 01:07 PM

[doubleguns:]

More like the continuing crisis is inevitable.

Sep 10 01:29 PM

[Mayascribe:]

Fantastic news! Thank you, thank you Greenspan, you moron. You effed up this country so badly, I may be able to way more than double up again!

Sep 10 02:22 PM

[speculari:]

Greenspan was Chairman of the Fed? My God, Tim - and here I thought he was just another clarinet player!

Sep 11 07:29 AM

[a fat panda:]

Specs -

Someone had to play the music that Chuck Prince of Citibank was dancing to.


On Sep 11 07:29 AM speculari wrote:

> Greenspan was Chairman of the Fed? My God, Tim - and here I thought
> he was just another clarinet player!

Sep 15 05:51 PM