Alan Greenspan’s “don’t blame me” op-ed piece in the Wall Street Journal was greeted with more than a dose of cynicism by hedge fund manager Bill Fleckenstein, whose book, "Greenspan’s Bubbles: The Age of Recklessness at the Federal Reserve,” is scheduled to come out next month.
In today’s Daily Rap piece on his subscription website, Fleckensteincapital.com, Bill says:
He would have you believe that it was the collapse of communism that created the mortgage crisis. However, he does get a couple of points correct: “The root of the crisis, as I see it, lies back in the aftermath of the Cold War, when the economic rule of the Soviet block was exposed with the fall of the Berlin wall.”
He is right. That is approximately when the crisis began, but that’s because it was close to the beginning of his term at the Fed, which started in mid-1987. It’s the mistakes made during his tenure that created these problems.
As to his comment — “I have reluctantly concluded that bubbles cannot be safely defused by monetary policy — that, too, is right. There is no safely defusing bubbles. There is only the prevention of bubbles. The attempt to safely defuse or create soft landings only creates more problems, as we have seen with this housing bubble that followed the equity bubble.
He does acknowledge that perhaps the Fed held rates too low, too long. But then, he suggests that he was right for doing so, because “the potential threat of corrosive deflation in 2003 was real.” That nonsense requires no rebuttal.
Lastly, he claimed: “The impact on demand for homes financed with ARMs was not major.” I guess that depends on what the definition of “not” is.