Greenspan Blame Game Continues

Interesting piece interview with Alan Greenspan in today’s Wall Street Journal by Greg Ip. Two things (yes — only two!) struck me as particularly interesting.

The first had to deal with Greenspan’s reaction to criticism of his low-rate policy by Stanford University economist John Taylor, who believed rates were too low for too long. According to the interview:

If the Fed’s policies were to blame, the housing bubble would have been mostly limited to the U..S. Yet, he argued, many other countries had housing bubbles, too. A better culprit, he suggested, was the glut of savings globally. Savers were competing to make loans, keeping long-term interest rates low in many countries, and fueling housing demand.”

Or maybe, just maybe, the sloppy and widespread use of mortgage-backed securities wasn’t limited to the U.S.

And:

Adjustable-rate mortgages were the cheapest way they could finance home purchases. but if they were not available, home purchases arguably would have been financed with fixed-rate mortgages. There’s no evidence of which I’m aware that says that price would be importantly less if adjustable-rate mortgages had been less.

Proof that Greenspeak lives on.

Perhaps the best take on Greenspan’s role in this mess comes from longtime Greenspan critic, money manager Bill Fleckenstein, in his book, “Greenspan Bubbles.”

Comments

[GaryD:]

Hard to believe that such a yak had so much power and responsibility for so long. I wonder if Greenspan understands economics at all.

2008 Apr 08 03:33 PM

[GKM:]

Bubbles have existed from the beginning of time. I know Greenspan is getting up in years but he isn't as old as the hills - as the saying goes. To make the case that Greenspan is responsible for any of the bubbles during or following his tenure is very ignorant. You would be better blaming human nature since that is what actually drives a bubble.

To understand what goes on in a bubble, start here en.wikipedia.org/wiki/... and review some of the referenced literature. Bubbles occur all the time in both directions of up and down (greed and fear respectively) driven by the collective human psyche. Unless you believe Greenspan capable of manipulating that, then educate yourself so you can hopefully avoid the same herd mentality in the future (and profit in doing so).

If you believe Greenspan can manipulate the human psyche, try a tin foil hat.

2008 Apr 08 04:59 PM

[bruin532:]

The cause was three fold. Greenspan took interest rates to virtually zero for two years for one reason to accelerate the economy and insure the re-election of George Bush unlike his father 12 years earlier. The administration is responsible for reducing lending standards for low income (subprime) borrowers to increase economic growth without implimenting proper regulatory safeguards. The banks are responsible for inflating the home accessments and the loan amounts thereby increasing their profit margins that were based on those loan amounts.

2008 Apr 08 10:22 PM

[kurt walter:]

The Fed is out of control and clueless. Bring back Paul Volker.

2008 Apr 09 04:58 PM