Please, Mr. Greenspan, Shut Up

If ever there was a need for gag orders on former central bank chairmen, it is now. Actually, scrap that: if ever there was a need for a gag order on Alan Greenspan, it is now. The rest of them have all acquitted themselves quite admirably; Greenspan, alone, seems determined to kvetch and second-guess and generally be an unhelpful nuisance to his successor.

The Economist reports on his latest salvo, which is positively astonishing coming from a man who was, for his many years at the Fed, not only the chief bank regulator but also the lender of last resort should there be an emergency. He never seemed to have any trouble with this at the time -- but now, it seems, he's changed his mind:

Better someone else be in charge of bail-outs, he argues, than the Federal Reserve, which he led for 18 years.

Mr Greenspan says a high-level panel of American financial officials should be given broad power to seize any financial institution whose failure threatens the entire economy, bail out its creditors and close it down ...

Greenspan sounds a little like Larry Summers, with his desire for ex-ante frameworks. The Economist quotes his memoir's new epilogue:

The critical need ... is to formalise ... the procedures improvised in the case of Bear Stearns. This should ensure that in the future, government financial assistance to lending institutions does not impact the Federal Reserve's balance-sheet and monetary policy.

Or, in English: remove the lender-of-last-resort and bank-regulator functions from the Fed, and give them back to me, Alan Greenspan. (Sorry, give them to "a high-level panel of American financial officials".) Make sure that when markets run into a crisis, the Fed only has one policy tool at its disposal, the Fed funds rate. And tell the Fed that it should lend only to the US government, not to anybody else; if the US government then wants to lend to banks, that's a matter for the legislature and the executive, not the Fed.

This is very silly stuff. Does Greenspan want the Fed to abolish the discount window too, while he's at it? And has he forgotten that the Fed funds rate is, actually, an interbank interest rate? The Fed is a creature of the banks: indeed, it's owned by the banks, and it is in the best interests of both the banking system and the country as a whole that it remain that way. Greenspan's plan is, in truth, a covert partial nationalization of the banking system: it would serve only to politicize something which at the moment is in the hands of very able technocrats like Ben Bernanke and Tim Geithner.

But given that it's not going to happen, Greenspan's plan is really just another way for him to undercut Bernanke's authority. I hope that Washington sees it for what it is, and gives it all the attention it deserves, which is none.

Comments

[zeppo:]

The problem isn't that he's speaking (free speech and all that), the problem is that people who ought to know better are not only listening to him but acting on what he says. So who's the greater fool here?

2008 Aug 08 10:04 AM

[EUARTE:]

He was the worst Chairman possible. He was totally political and really did not understand what he was doing. I don't believe the present crowd understands it all but they are trying. They are doing it wrong but keep looking to understand and may correct themselves. Greenspan just kept printing money and mumbling.

To show he is without grace and a politician he keeps talking. Shades of his friend Bill Clinton. Birds of a feather.....

2008 Aug 08 10:06 AM

[byrd:]

I always felt that Greenspan was consistently avoiding answering anything directly, and after he admitted to speaking in "Greenspam" dialect, I really do not listen to anything he has to say. To me he has always spurted out nonsensible hogwash, and should have had his mouth taped long ago.

2008 Aug 08 10:51 AM

[Obama is Bu...:]

When he was younger, Greenspan was the chief apostle of Ayn Rand (free markets!); but as he got older and more senile, he become the biggest advocate of central economic planning.

Greenspan's economic forecasting service (which he ran before his CEA term in the early 70s) was known to be galactically wrong.

On the CEA, he gave Ford lots of advice -- see the economy of the 1970s to see how he did. Paul Volcker spent his first few years at the Fed un-doing all the damage.

After Greenspan took over the Fed, debt levels through out the economy skyrocketed. Economic "growth" from expanding leverage is not the same thing as true economic growth.

The money supply grew much faster than the economy -- which is the text book definition of inflation.

And to top it off, Greenspan politicized the Fed by giving his "expert" opinions on tax policy. Even if you agree with Greenspan, taxes are not under the Fed's umbrella. Greenspan even started giving his "expert" on oil prices... Even if you think Greenspan was a good Fed Chairman -- how does that make him an expert on energy?

The scariest thing (as pointed out by zeppo) is that there are people who still listen to this guy

2008 Aug 08 11:03 AM

[Cowpens:]

Greenspan's words are well sounding non-sense. EUATRE is right, Greenspan "was the worst Chairman possible."

2008 Aug 09 08:18 AM

[GMC:]

Greenspan and our current economic woes are a good reason that the Fed should never have been created. Cuba is a perfect example of how it will eventually reduce the populace to poverty. It just doesn't work.

2008 Aug 09 08:31 AM

[secmaven:]

Housing Bubble Alan is restive in his retirement.

2008 Aug 09 10:39 AM

[Urbane Gori...:]

Reminds me of a pedopheliac trying to explain away his actions. Best if he just fades away... jegan

2008 Aug 09 02:09 PM

[UnKle AL:]

Mr. GreenspaM (!) is going around the world trying to cast a good light on his legacy by statiing that "no-one could have predicted this present debacle. WRONG !! My wife's bridge club predicted it several times wondering how people could be given a mortgage without a significant down payment. From nothing down to overblown appraisals to ARM's to interest only loan- only an idiot or a totally incompetent would stand idly by and say nothing. Now, we are all paying for Alan's pseudo intellectual stances. Perhaps it is finally time for historians to refer to him as Mr. REDspan to connect him to the bottom line of his tenure in office.

2008 Aug 09 02:11 PM

[ATHELSTAN:]

The old boy may be suffering from senile dementia. To add insult to injury Dr. Greenspan also charges his listeners big bucks to receive his advice. So, perhaps he hasn't lost all his marble.
He is evidence of what happens when Republican presidents turn to someone they think is an expert.

In Bush's case, "Allan, you're doing a great job." Sounds familiar doesn't it?

Greenspan and Ben Bernanke are living proof the Federal Reserve should be abolished lock, stock, and barrel. The corrupt bargain that was created by bankers and the US Government in the Wilson era is a corporate socialist experiment which has proved to be an unmitigatged disaster. It may also lead to yet the greatest crash of all time.

2008 Aug 09 03:55 PM

[Pretzel Logic:]

I agree, Greenspan should go away. I equate Greenspan giving financial advice with Jimmy Carter giving political advice. It's one thing to be a simple armchair quarterback -- it's entirely another to be an armchair quarterback after you, personally, threw 27 interceptions during the Superbowl.

Hey, Greenspan! You've already proved you're a failure. Nobody wants your advice anymore. (And that goes double for you , Carter!)

2008 Aug 09 07:36 PM

[doylegroup:]

Thank you for your article!! I've felt this way for over a year now. MR. GREENSPAN go AWAY!

2008 Aug 10 03:57 PM

[bobbobwhite:]

Anyone with at least half a brain listening to Greenspan for the very first time many years ago should have been warned that he is out of touch with anything realistic or of this earthly world. How do totally detached men like him ever get power? But, then I think of dummy Gerald Ford, space cadet Jimmy Carter, and "feel my oil" Dubya and wonder the very same thing. We Americans are the problem.

2008 Aug 11 12:56 PM