Greenspan On Current Meltdown: Interview with an Arsonist

He keeps popping up, so it's probably not a bad idea to offer up a few comments here since George Stephanopoulos, at least, seems to remain blithely unaware that he's actually talking to a former arsonist as well as a firefighter, as Dean Baker opined on Sunday.

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The host of ABC's This Week gushes during the introduction:

For more on this we are now joined by the man who knows more about these problems than just about anyone else in the country, former chairman of the Federal Reserve, Alan Greenspan.

In retrospect, we would all be much better off right now if he'd known more about a few "potential" problems five or six years ago, rather than keeping the gas pedal pegged to the floorboard while looking the other way as all sorts of mischief began on Wall Street.

Looking back, maybe all that energy spent heaping praise on "financial innovation" and the "diversification of risk" - that same "innovation" and "diversification" that now seem to have brought the world just past the point where Wile E. Coyote realizes there is no ground beneath his feet - might have been better spent mustering just a small bit of skepticism.

The whole country believed there was such a thing as "a free lunch".

Now it turns out there isn't.

The former Fed chief once again identified home price stability as the key to financial market stability, an argument that could also have been made back when home prices were going up as fast as they are now going down.

That is, when everyone was growing rich beyond their wildest dreams without even breaking a sweat, simply because they owned a home.

Americans turned to their equally-rich neighbors and said, "What a country!"

Today, they are saying the same thing, but with a decidedly different tone.

His best guess for home prices leveling off is early-2009, so, anyone thinking about making a home purchase should adjust their buying plans accordingly (i.e., wait until late-2009 at least, since, over the past six years, the former Fed chairman is batting about 0-for-1,000 in his housing market predictions).

It is truly amazing the amount of hubris that is still in this man given what now lies in his wake. In his own revisionist history, he portrays himself as something of an innocent bystander, helpless to effect change at the time, yet lending a hand as best he can now.

While not entirely to blame for what is unfolding, he was a very big cog in the machine.

It is also truly amazing that so many in the media continue to be incapable of connecting some very large, simple dots over the last 25 years.

Comments

[svkoho:]

Excellent article from Tim. The only flaw I can see is that Tim was too easy on easy Al. Clueless reporting from the media is de rigeur. When the story of the causes of the greatest depression is written, Al will certainly have his own chapter.

2008 Sep 16 09:48 AM

[jazzkeys:]

Excellent article as usual. Greenspan will subscribe to any foolish theory in order to avoid blame. He is now calling for things that he never had the guts (or foresight) to do himself!

2008 Sep 16 11:50 AM

[BerkeleyBob:]

Please recall that Mr. Greenspan endorsed the adjustable rate mortgage as being "pro-consumer". The S&L crash and repair was facilitated by laissez-faire regulation and inflated appraisals. ARM's were a massive shift of risk (of future interest rate increases) from lenders to borrowers, to the great benefit of the former. Mr. Greenspan's interest rate decreases were made in the context of manipulated basic data, GDP and CPI are both suspect. This is a bi-partisan issue; there is plenty of blame to attach.

2008 Sep 16 01:40 PM

[UnKle AL:]

Mr. Greenspan is going around the world trying to cast a good light on his legacy by stating 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. He is now affiliated with s firm that has made billions by shorting Freddie and Fannie. How coincidental ! Perhaps it is finally time for all of us who are financially suffering from his incompetence to refer to him as Mr. REDspan to better describe his term in office.

2008 Sep 16 01:48 PM

[daytrading:]

I'm sick of hearing how great Greenspan was, so this article was very refreshing. That guy was so overrated and hard on the eye. Thanks Tim

2008 Sep 16 01:59 PM

[nukldrager:]

Where the buck stops. Most people still think presidents are responsible for the economy. The fed chairman and fed board are responsible for the economy. Greenspan should go away and reflect on Trumans motto.

2008 Sep 16 05:52 PM

[getlost:]

I am glad to see that some are finally speaking the truth. The credit crisis is a result of the mortgage/housing crisis. AND housing is a crisis because people were conned into believing that they had to pay inflated prices for homes. Thanks to the National Association of Realtors. It was all a con game with everyone making money except the poor schmuck buying the house. Everyone should realize that many of the foreclosures that has caused the credit crisis would not be occurring if the homebuyers had not paid so much more for their homes than they were worth. Even with the loans resetting they may still have been able to afford to stay in their homes. The monthly mortgage for a $250K home has to be quite a bit less than the $350K + that sellers were asking and getting. How about a little blame for Main Street, also? Wall Street certainly is to blame, but they didn't get the buyers names on the contracts. The realtors did that. They are the true foot soldiers who stoked the fires of the housing crisis. Made a lot of money selling inflated housing. They employed a lot of deceptive marketing strategy that fueled the fears of prospective homebuyers - often naive first timers, I suspect. Alan Greenspan just did his job. Saved Bush's ass from being a one term president like his dad. No housing bubble from 2003 to 2005 - no second term. "It's the economy, stupid!" Bush could have prevented this whole debacle by just acknowledging early on that rapidly rising home prices aren't the norm and that homebuyers should be careful. He could have warned that what was happening could be dangereous to the country's economic well-being. . But, it was his only way to prevent a recession in his first term. So, to hell with the country! The democrats are no better, either. They had to know where this was going. (Just take a look at the comments of some of them during the committee hearings on the American Housing Affordability Act of 2002. If housing affordability was a crisis in 2002, how could Washington have stood silent while this accurred?) But, the NAR and home builders' PAC have deep pockets, I suspect. A whole lot of people betrayed this once great nation and should be going to jail.

2008 Sep 17 01:19 AM

[Scooter McGee:]

I think it's time to give the creator of "The 100 year storm" the title he deserves!

"Hurricane Greenspan"----

2008 Sep 17 02:57 AM

[nukldrager:]

Good comment Scooter McGee. You stay for the next round!
getlost, sorry dog. Waayyyy off key. Dude you gotta go man. lol

Mr.Greenspan, a priori, knew the storm was brewing and alluded to it in his book. With his usual extravagant eloquence. Today, it looks like he's better with words, than economy's. Now somebody please tell me to go home and that it's not that simple.

2008 Sep 17 07:25 AM

[rm:]

[It is truly amazing the amount of hubris that is still in this man given what now lies in his wake.]

Actually, it's quite normal, and predictable.

See the book, "Mistakes Were Made (but not by me)."

2008 Sep 17 10:45 AM