Alan 'Not-Me' Greenspan Strikes Again

When I was growing up my mother used to say the same person caused every mishap around our house. That person stuck a screwdriver in the TV, broke the talking robot, hid the dirty dishes under the fridge, poured lemonade on the Roger Whittaker album, etc. Who was it? NotMe -- or Not Me, to be linguistically precise, because that it was what my brothers and I used to always say when accused: "Not me! Not me!"

I had a similar feeling today in reading Alan Greenspan's WSJ column about subprime. He found fault pretty much everywhere but in his own actions in explaining the current subprime-related credit problems in the U.S. It was glasnost and the end of the Cold War; it was emerging economies; it was low-priced exports; it was market euphoria, etc. It just wasn't, you know, him.

About the closest Mr. NotMe comes to saying "Me" is in this typically evasive paragraph:

I do not doubt that a low U.S. federal-funds rate in response to the dot-com crash, and especially the 1% rate set in mid-2003 to counter potential deflation, lowered interest rates on adjustable-rate mortgages (ARMs) and may have contributed to the rise in U.S. home prices. In my judgment, however, the impact on demand for homes financed with ARMs was not major.

"Not major". Okay. But that's not the same thing as saying it's not "minor". So, where, in the continuum between major and minor would you put it, Mr. NotMe?

Comments

[GH]

Apparently you don't understand how those corrupted by power lie. It's simple. When he says "Not major", he means "I can fill in anything but the word major". Such as: MASSIVE or DOMINANT or TOTALLY TO BLAME.

[Clay_Kime]

Paul:

Thanks for the observation. Do you or anyone else know the stats on the resulting increases in ARM loan originations? It would seem that that data would tell us the most about the major-ness of the Fed's impact.

Regards,

Clay

[User 41406]

ARMs are just like those teaser rates on credit cards - designed to get you hooked then sock it to you later.

[floridadon]

Greenspan has made a career of mucking up the markets and businesses in this country. His negative effects were felt for years, and yet he still can not keep his mouth shut.

[Sanibel]

Greenspan caused the mortgage crisis by taking rates too low for too long and then raising them too high once he realized his mistake. I am glad a lot of people are not letting Greenspan get a pass on the mortgage crisis he caused.

He also caused the market bubble collapse. He had raised short term rates to 6.5 percent with no inflation in sight because he feared irrational exuberance. He was the one who was irrational.

[Reinko]

Greenspan has butter on his head; When I myself understood back in the Summer of 2004 that there were some problems with those rating companies and that all those 'bad credit no problem' advertisements were also weird to the bone, Greenspan only understood late in 2005 that there were troubles ahead.

Now, how can it be that a simple minded academic like me is 18 months fore on Greenspan who has all the statistics needed right under his fingertips?

But there is more to be said on Greenspan:

With the mortage growth and the median income growth you can fairly sharp caculate how large the 'bubble component' of the housing market is. The fact he has never mentioned that proofs that he cannot do the most elementary calculations.

He only good at vague talk and nothing more.

[rana]

accountability is the name of the game in every aspect in life.
greenspan may have been a contributor to the problem like many other factors, but the simple truth is that markets like other factors in life move in circles and history teaches us that things repeat themselves.
as students of this history we should know not to fall into the traps and even profit from them.
is there anyone out there that really believed that the rates will stay at 1%? and if they didn't did they take the risk of rising rates into account? and if they did any decieded to do nothing who is to blame?
if someone got hurt from this crisis i feel for them, but let's try and make the most from it for the future. let's not blame anyone and anything and think of that like a force of nature and see what WE did wrong. maybe it was wrong to listen to all these pundits, maybe it was wrong to put money into something that looks very cheap in historical perspective etc..
the bottom line is THERE IS NOTHING GOOD ECONOMICALLY WITH BLAMING EXTERNAL FORCES. it may be good for phsycological purposes, but we can to a shrink for that. in order to have the means to go to the shrink we only need to focus on the economical view and it says WHEN AND IF WE LOSE IT'S OUR FAULT AND WE NEED TO LEARN FROM IT AND NEVER REPEAT IT. those that will act upon it will thrive and those that will bash everyone and everything instead of learning and correcting the mistakes will use lots of energy that could have been used to become better in things that we do. PUT YOUR ENERGY INTO GOOD USE AND DON'T USE IT TO NEGATIVITIES, it is a waste of time and has no economic benefits, maybe only that you won't need to pay the shrink after all :)

[RB]

Greenspan was directly responsible for the market crash of 2000. The "internet bubble" would have resolved itself without taking taking down the entire market as those companies without a viable business plan and a history of profitability would gradually go under on their own or merge with other companies. It was Greenspan who couldn't stand the "irrational exuberance" of investors who were taking advantage of the positive effects of the economic growth of China, India and other emerging markets during that period. There wasn't a single sign of inflation as Greenspan continued to raise interest rates in the insane desire to kill the stock market which affected the entire industrialized world. Considering the fact that the vast majority of retirement/pension plans are based primarily on investing in the stock market, Greenspan's actions had a disastrous effect on those plans. I lost over 50% of my 401k. Unless he has something positive to say he should keep his big mouth shut. I am certain that Bernanke is going to have the exact same effect every time he opens his trap.

One more thing: It's obvious that rising oil prices are directly responsible for the current wave of inflation sweeping the country/world right now. How in the heck do the idiots at the Federal Reserve think that raising interest rates is going to bring down the price of oil?

[rana]

do you really think the problem is oil prices only?
it's commodities in general or better say natural resources.
regarding the past, nothing could have stopped a big crash from happening, it's the nature of the beast. when everything was priced with no economic logic the only question was the timing and the longer it would have take to be resolved the harder the outcome.
when markets go up people become careless and invest even what they don't have. the people tend to forget the risk element and valuations and just feel the joy of winning. this can take years and most people can't stay out for years and if they are more savvy and know how to use derivatives to protect themselves they tend to push that aside also after few times since it didn't "work".
when judgement day comes it usually comes in two stages. the first is when all are in denial they say it's just another correction and they get invested even more. when the reality showes that economical conditions changed for whatever reason the fear is taking hold and everyone is rushing out. IT IS FAST AND FURIOUS. pain is everywhere and mostly with the people that were the greediest.
i'm not saying that greenspan or anyone else was right with what they did, I SAY THEY SHOULD HAVE DONE IT EARLIER. the reason for that is the nature of us as humans, or at least most of us, to get to greedy. money is pumped into the systems and we tend to borrow to much and save too little. we are the GENERATION OF THE CONSUMERS.
at the stage we are in we have lot of economies around the world that are growing real fast. it may be good for multinational companies, especially when the dollar is getting weaker, but there is real inflation. it might not be measured with the standard measures of CORE inflation, but when you buy food, electricity, water... you just keep paying more and the growing economies insure that the prices of natural resources won't come down but up in the long run.
there are few possible scenarios that might occur because of that but it's another discussion and no one can really tell what the real outcome will be. it goes from nothing special to a war on these resources between regions and inside the regions.
what we can do as rational investors is to keep investing smartly. keep our risk to normal levels. if we have an 401k that carries that much risk we need to reduce the risk.
anyway this is only my take on things and only sharing it with others. the final decision is for each individual on thier own.
i wish you all the best of luck and good investing and happy new year in advance.

[Rich4REITs]

Before 2000, people confronted dotcom bubble, the low interest rate fund save the market; however, create another behemoth unconciously. After all, the culprit is Greedy instead of Alan or Ben. As long as those super innovative banker around the world don't pay for their crimes, the greedy will morph and become something we don't perceive in next time. Policy makers are goons of those bankers, always. Frozen rate will never ever solve the problem of subprime but worsen it.
God bless capitalism!!