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In Defence of Alan Greenspan: The Age of Turbulence Re-visited

Politics / Central Banks Aug 27, 2010 - 08:02 AM GMT

By: Andrew_Butter


Diamond Rated - Best Financial Markets Analysis ArticlePlenty of people have been laying into Alan Greenspan since the full horror of the financial catastrophe that threatened to destroy America (and it still might), was laid bare:

This was Mike Witney:

Alan Greenspan's performance before the Financial Crisis Inquiry Commission was a real Oscar winner. At no time, was the ex-Fed chairman in trouble, and he was able to showcase the full repertoire of fake emotions for which he is renowned. He was alternately condescending, professorial, combative, engaging, and acerbic. It was vintage Greenspan from start to finish; the tedious jabber, the crusty rejoinders, the endless excuse-making.  At 80, Maestro still hasn't lost his touch. No one laid a glove on him, which is precisely the problem.

It's galling that, after everything that's taken place, Greenspan is still treated like royalty; still given a platform so he can run-circles around his critics and make them look like fools. That's not what the public wanted, another playful sparring-match with Chairman Flim-flam.

They wanted to see him grilled, interrogated, badgered, threatened and humiliated.

And they want to see some trifling sign of remorse for the ruin he's  brought on the country. But there was no remorse; no restless squirming, no flickering look of self-doubt, no sudden outburst of regret. Nothing at all. Just the brazen buck-passing of a self-admiring old man trying to pluck his reputation from the ashheap.

No one person is more responsible for the financial crisis than Alan Greenspan.

There are many others who share similar views. But now the financial reforms which are supposed to prevent what happened happening again, are starting to be rolled out (forget about preventing what’s going to happen next, happening next), my mind wanders to why what happened, happened?

So I decided to check out this “Ogre” for myself. Who is this man, the maestro conductor who orchestrated the descent into chaos?

What made him tick?

I bought Greenspan’s semi autobiography, The Age of Turbulence, as a 90th birthday present for my dad, the week it came out in early 2007.

He read it all the way through, although he didn’t have many comments outside of remarking that Greenspan played golf (a big positive), but he was irritated that there was no information on his handicap.

I imagine Greenspan played low, short and straight; and never did better than eighteen; regardless, when a semi-autobiographical book leaves out such vital details, well you never know what else was left out?

But one of the “advantages” of the timing of the book is that when Greenspan wrote it, he was still the “Maestro Star” and what happened next, was not imagined, by him or (almost) by anyone else.

I retrieved The Age of Turbulence from the shelf six months ago and I concede that initially I was looking for “sound-bites” to spice up articles about “what happened” and Greenspan’s role in it. Then I read it, at leisure, like starting at Page One and progressing sequentially through to page five-hundred and five, which is not something I normally do.

I found something completely different.

It is a fine book. He admits that he was helped by his journalist wife; which probably explains why there is none of the garbled language that has roots in Serbo Croat, for which he is so famous. It is in fact written in English and no translation is required.

Outside of what Mike would call the musings of a “self-admiring old man”, which in my opinion is unfair, certainly there is neither self-aggrandisement, nor is there any “false modesty” in the book, rather it provides a thoughtful and balanced account of the past fifty or so years of economic history in USA, from someone who was on the inside.

You can say whatever you like about Alan Greenspan; but one thing that shines through quite clearly, is that right or wrong, he was/is, someone who “gives a damn”.

And I can imagine how it must feel to turn up to “hearing” after “hearing” and listen to people like Henry Waxman and Brooksley Born tell you “you failed”. But still he keeps coming back, because he has something to say, even though, these days, no one listens, all they are looking for is sound-bites. Me I would have crawled under a stone.

Good-intentions aside, Greenspan is blamed for the decline of the purchasing power of the dollar, for doing nothing to stop the housing bubble, for the explosion of public-sector debt, and for facilitating the creation of an un-regulated super-casino that permitted insiders to become rich beyond comprehension at the expense of the American economy, and American taxpayers.

And now the critics lampoon past honours sarcastically using the words “Maestro”, “Magician” and “Rock Star Sir Alan”, as barbs.

Read the book, you might change your mind. More important; you might conclude that Greenspan-baiting hides where the true problems lie.

Here are some of the common rants:

1: Greenspan was brainwashed by Ayn Rand

Ayn Rand believed that less government and less regulation is better than more.

 Correct me if I’m wrong but I suspect Rand was an “Austrian” (admittedly untrained and not properly “schooled”, she was after-all an author…and a woman), but if you have any doubts, have a look at Marc Faber, he is Ayn Rand re-incarnated (pigtail and all).

The conventional wisdom now is that if there had been more government and better regulation then America, and the world, would not be in the mess that they are in.

The story goes that the “brainwashed” Alan Greenspan was like a demented suicide bomber worming his way into the heart of the world financial system concealing his true colours while….trusted by all….he secretly sabotaged the very structure of the Free-World…from within.

An excellent account of that point of view is “The Warning” which is a documentary film about how Brooksley Born was shut down. It is a brilliant character assassination.

In the beginning of the documentary, much is made of a comment Greenspan made about how Ayn Rand had been “a huge influence on his thinking”, and how, much later he admits reflecting that when he took on the post of Chairman of the Federal Reserve, there were many elements of what the Fed did and stood for which were contrary to his philosophy.

That is translated through the film into the thesis that Greenspan was against all forms of regulation, and in particular regulation of the financial services industry.

There is a clip of Ayn Rand speaking in her “very foreign” accent, like some sort of re-incarnation of Dr. Strangelove; as if somehow she had hypnotised a generation of American legislators.

Read the book…Greenspan was influenced by Ayn Rand as a young man. She was not his only influence, and after that he spent twenty years building up his consulting business before he entered public service.

Ayn Rand passed away in 1982.

Greenspan was put in charge of the Fed in 1987. It’s a bit of a stretch to blame her for something that happened a quarter of a century after she died.

2: Greenspan didn’t understand what Ayn Rand was talking about

Other critics of Greenspan say that he didn’t understand what Ayn Rand was talking about; many have made the observation that it does not makes sense for someone who ran the Fed to cite Rand as an influence, and that he was basically a social climber who tagged onto Ryan’s famous skirt to get into bed with her friends (one of whom he married).

That idea fit’s better than the “brainwashing” theory.

Greenspan was an only-child Jewish kid from a broken family with a nice momma and a moderately unsuccessful dad he never really knew, who interestingly worked on Wall Street.

Yet he made it all the way up to top-table with all the WASPS, he played golf with Jerry Ford who he calls a “true friend”, (and he wept at his funeral - I’m not sure what that reveals, WASPS don’t weep (I know, I’m one)). He traded jokes with Ronald Reagan, and Bill had him stand next to Hillary when he presented his deficit-cutting plan to Congress; on top of all that he was “just good friends” with hundreds of “A-List” personalities.

Yeah – social climber – no contest.

One thing that it’s easy to forget about Greenspan is that he was a charmer. He was the smart-ass Jewish kid, with a big smile, always cracking jokes in the background; he even made the Queen of England giggle (that’s a tough one)!

There is an amusing anecdote that he tells of a joke Ronald Regan told him, of  how a visitor to the USSR May-Day Parade was intrigued that after hours of watching mobile nuclear rockets passing-by, at the end, there was a crowd of scruffy civilians marching-by, completely out of step with the music. He asked his host, “Who are those people”, he was told, “Ah, they are the economists”, the REAL weapons of mass destruction”.

Greenspan got ahead because people liked him.

He had good manners, he didn’t get drunk at parties, he was funny, he remembered names and cared about ordinary people, and he played golf and tennis. He was smart enough but not so smart he was a pain in the ass, and he was a team player, he didn’t take kickbacks and he had no agenda in public office outside of serving his country.

Is that a crime?

3: Greenspan was a vain man who got into public office to feed his ego

That’s another common complaint, similar to the complaint about his infatuation as a young man with girls who talked with “foreign” accents.

Greenspan’s account is rather different and I have no reason to doubt it.

He says he got involved in politics working on the Nixon presidential campaign in 1967, and he was offered a job on the White House staff after Nixon was elected. He turned it down; he says that was because of an incident when he saw the “other side” of Nixon, he comments in the book:

“You didn’t know what he might do, and the President of the United States has so much power that it’s scary – it’s very hard for a military officer sworn to uphold the Constitution to say, “Mr. President, I’m not going to do that.”

As the details of what many people consider to have been war crimes committed under the orders of George Bush, are slowly leaking out, those words have a prophetic ring.

So Greenspan went back to his very successful consulting business. Eight years later America was embroiled in Watergate and suffering from the Arab oil embargo, inflation was double digit and unemployment was 11%. Greenspan got a call from Treasury Secretary Bill Simon to ask him to take over as chairman of the Council of Economic Advisors. He agreed to meet with Al Haig, who:

“…really put on the White House show of interest, sending a military executive jet, complete with a steward to shuttle me down to Key Biscayne.”

He turned that job down too, and he refused to meet with Nixon. But after he had returned to New York he got a call from someone he calls his mentor, Arthur Burns, who told him.

“This government is paralysed. But there’s still an economy out there and we still have to make economic policy. You owe it to your country to serve”.

He took the job, thinking it would almost be a caretaker position, “to help hold things together”. But then, on the day of his Senate confirmation hearing, Nixon resigned, and that’s how his very fruitful relationship with President Ford started.

That’s hardly the way a “vain man” weasels his way into power to satisfy his ego.

5: Greenspan was a hack and a lousy excuse for an economist

These days it’s hard to be sure that when the words “lousy economist”, are used, whether that’s lousy as in “all economists are lousy”, or a “lousy economist and not a very good one either”.

Greenspan notes that his selection as head of the Council of Economic Advisors was unusual in that (at that time) he did not have a PhD. Although he notes that he had big computers and “econometric models” that most economics professors would recognize (that was in the days when it was public knowledge that if you fed garbage into a BIG computer you would get strawberries and cream out the other end, (and if you didn’t well your computer wasn’t big enough)).

The “economics” that Greenspan did, and which he had up to that point made a lot of money doing, for twenty years, was basically ferreting out data (remember in those days data was a lot harder to get hold of), and then using the data to make short-term predictions, exclusively for the private sector, and mainly for manufacturers.

Regardless of if he was any good or not, he get work, and he got paid…for twenty years, and he made a very decent living.  Insofar as the “macro” economy was concerned, he put together analysis that he published, just like these days many contributors on Seeking Alpha put together analysis, to “strut their stuff”.

There is nothing wrong with that. Strutting your stuff is how brands are built, and by the time Greenspan was being invited to “help-out” the government, he had built a sort of brand as a “safe-pair-of-hands” who could look round the corner of the future; and have a reasonably good stab at figuring out what might happen next, or what the unintended (short-term) consequences of a certain policy might be.

He had some notable successes; including working out that President Johnson had hidden the true cost of the Vietnam War from everyone. In that sense he was with the “Anti-Vietnam-War” brigade, although he notes, in 1966, a forty-year-old “suit” who listened to Motzart, was not the normal run-of-the-mill anti-war protestor.

His first “prediction” which had done his consulting firm a lot of good, was the 1958 recession, which  was based mainly on internal data of forward orders of the steel industry, and for example, he “foresaw” the shift from tin cans to aluminium cans; and a big client was ALCOA.

Two points (1) he never did “macro” (2) his career was all about short-term timescales, based on ferreting out data before anyone else. That continued into the time he was at the Fed, when his obsession was getting hold of all the data hot-from the press, if possible before anyone else, so that he could be ready to tweak interest rates up or down…”as necessary”.

That’s was what passed for economics in those days, and to a large extent, that’s what passes for economic these days. Greenspan’s “crime” was that he was an “ordinary” economist.

5: Greenspan played a part in de-regulating the financial services industry.

Greenspan’s views on regulation were much more about de-regulation of industry as a whole than about financial markets. As Chairman of the Council of Economic Advisors, his first job in government, he played a part in the de-regulation that was crafted under the direction of President Ford (for example of the airline industry and telecoms).

According to Greenspan that was “the Ford administration’s great unsung achievement”, although the way it turned out much of the credit for that went to Jimmy Carter (during a period of time that Greenspan was out of public life, happily running his consulting business).

Greenspan freely admits that he supported the legislation introduced just before he joined the Fed that allowed banks to sell securities, and he “testified many times for legislative change” supporting a process which led ultimately to the repeal of the Glass-Steagall Act.

But he wasn’t the only one; he was a voice speaking for the consensus, and interestingly the new-look financial regulations which are generally supported by the consensus, did little to reverse that.

Yes he was “allegedly” part of the “gang” of four (plus Rubin, Summers, and Levitt) who played a part in “shutting down” Brooksley Born when she attempted to introduce the type of legislation that already existed on agricultural derivatives, onto financial derivatives.

In “The Warning” there is a story-line that Greenspan at one point became so angry with Born that “his face turned red”. That was not confirmed by Born who quite properly refused to discuss her dealings with Greenspan. Greenspan evidently found to whole affair so trivial that he did not mention any dealings with Born, she is not even mentioned in the bibliography.

The implicit accusation that he orchestrated a sort of financial “free-love” movement, are neither fair nor accurate.

For a start Greenspan by his own admission was not a “financial wizard”, his consulting company was built doing econometric analysis for industry, getting hold  of data and using it to tell a story, before anyone else did.

“High” finance was a mystery to him; but he regarded it as just another industry, like the business of “IT” or breeding tropical fish.

There is a touchingly innocent remark that he makes about how, after he was appointed as a director of an investment bank (one of many positions he held, before he was appointed to the Fed), he asked one of the bankers how they made money out of foreign exchange trading; given that as far as he was aware the movements of currency in the short-term was essentially random, and impossible to predict. He needed the fact that the banks (then) simply acted as trading vehicles and made money whichever way currencies went, explained to him.

His role in “shutting-down” Brooksley Born was as the “non-financial” supporter of something orchestrated by Rubin (who was and is a banker), with Summers as the “hard man”, and Levitt as the charmer. In his book there is no mention of any of the alleged “machinations” or conspiracies relating to derivatives in the book, although there is plenty about his relationship with Summers and Rubin.

Don’t forget, it was Congress that shut down Born, sure the “gang-of-four” argued their case, but the decision was that of Congress.

Granted, Greenspan argued for de-regulation, but to him de-regulating the financial services industry was nothing different from de-regulating the airlines, and he never argued against having rules or safety standards. In fact in the four pages that he devoted to discussing his attitude to financial regulation, he makes one main point:

“An area in which more rather than less government involvement is needed, in my judgement, is the rooting out of fraud. It is the bane of any market system. Fraud is a destroyer of the market process itself because market participants need to rely on the veracity of other market participants”.

Many would blame the current catastrophe on the fact that retail banks were involved in the gambling casino and given access by the repeal of Glass-Steagall. But that is not proven, all that is proven is that it makes no sense for the government to implicitly and/or explicitly get involved in underwriting the bets of the gamblers via its support and then nationalisation of Fannie and Freddie, tax incentives to encourage debt, and then when the goose was well and truly cooked, the myriad of bail-outs.

If Greenspan had had his way, the government would not have subsidized home ownership (indirectly via tax let-outs) or directly by allowing Fannie and Freddie to grow into the monsters they are now and he would have made it very clear that the gamblers would have to be liable for payment of their gambling debts, not the taxpayers.

Many would point the finger at the lack of regulation of derivatives as a cause of the catastrophe, and the most recent “evidence” for that is how the Goldman brokered CDO resulted in huge losses for the long-end of the stick.

But derivatives were not the cause the house-price bubble which was the primary cause of the current catastrophe; and although there was a fear that a domino-effect of derivatives exploding as one counter-party after another reneged on their commitments, that did not happen.

Sure the fear of that was what drove TARP and the bail-out of AIG, and those losses were compounded by the gearing that derivatives provided, but no one has provided any evidence that derivatives caused the problem. Although granted when Bernake, Paulson and Geither were faced with that play…well…they blinked.

What was a factor was fraud.

Whether on not the shenanigans of Goldman Sachs were “lawful” or not, there is a wide consensus that they were somehow, at least ethically, fraudulent, and that the “scam” relied on one set of “market participants” relying too much “on the veracity of other market participants”, but not getting the truth, the whole truth, and nothing but the truth.

There is also a consensus that “Liar Loans” played a role, and that the corruption of lending standards by mortgage brokers who learnt how to “beat the system” also played a role. As did the actions of rating agencies who legitimized the process of making sure that market participants and the regulators did not get the information that they needed, and although they were supposed to be impartial, they allowed themselves to be played by the banks, for profit.

The rating agencies say, “It was an Act of God, a Black Swan, or the work of economic terrorists”.

And it’s very likely that they will avoid any censure (or serious litigation), thanks to the provisions for “Free Speech” in the US Constitution.

But the point is that they were paid to protect the system. That was their job, and in return for that role of “policeman”, they were handed a highly lucrative franchise by the government which mandated a captive market for their services. That was achieved by laws which said then (and still say) that for assets (in this case securities held by financial entities), to be counted towards a capital adequacy calculation, the securities had to be rated by an approved agency. It was that fatal hand of government which poisoned the market.

That was a concession of convenience as foolish and as self-serving as the concession to trade slaves that was awarded to the South Sea Trading Company.

On top of that “Public-Private-Partnership”, there was the hand of government mandating Monty Python Valuation Standards (MPVS), which allowed (and still allow) banks and corporations to report misleading valuations of their assets to investors and counter-parties, via FASB, IFRS, and the long-arm of Basel II (and by the way the “financial reforms” say nothing about that either).

And now there is Greece, and the Euro, which are in trouble mainly because Greece was allowed to fraudulently doctor its National Accounts, and cover their tracks via clever scams orchestrated by Goldman Sachs.

Many would say that the role of rating agencies which were effectively providing a valuation service was (a) central and (b) fundamentally fraudulent.

But it was not unlawful.

Yet if Alan Greenspan had had his way, it is highly likely that such anti-social government-brokered behaviour would have been categorized as unlawful.

But that was not his job.Greenspan never saw his job as that of a regulator. Sure as Chairman he was nominally in charge of the process of drafting regulations which was a task carried out by the Fed, and in any case, that “job” was split between the Fed, the FDIC and the Treasury. If Greenspan committed a “crime” it was more about letting the others play politics to grab power that he wasn’t particularly interested in.

Typically the regulations that he was involved in were handed down for drafting by Congress, his job was simply to preside over a process that was carried out on auto-pilot. He notes in his book that he only once went against the consensus in a meeting concerning regulation, and that was over an issue of arithmetic.

Yes the Fed is and was “independent”, but only insofar as setting monetary policy as a tool to control inflation, insofar as it’s role in regulation, it was (and is) answerable to Congress, and to the President.

And Congress and the President(s) were in love with the idea of using the power they had over Fannie and Freddie to push the idea of “home ownership”, achieved not by facilitating the building of new homes so that home prices went down, but by facilitating the availability of debt to all, and at the same time pushing house prices up.

That’s called having your cake and eating it, because when 70% of the population are owner-occupiers, the majority will always vote for higher house prices. Many chose to forget the joyous conversations about how much money everyone was making by gearing their properties to the hilt, and sitting back and watching the value double, making money, lots of money, for nothing.

You can blame an 82 year old public servant, who at the time was commended for serving his country impeccably, for all that if you like. It’s easy to throw stones, and in America the memories of the Lynch mobs are only hidden skin deep.

But the real reason for the housing bubble was because Americans voted for it, and their politicians obliged.

Try putting “Bush Housing You Tube” or “Barney Franks Housing You Tube” in Google, you will see how much the politicians of the time were riding the wave of promising America rising house prices, forever, and forever…Amen.

The tag-line was that homeowners (the rich and the middle class) are “good citizens” (like Good Americans), whereas renters (the poor) are “bad citizens”. So one administration after another devised clever ways to reward the “good citizens” (tax-breaks on capital gains, tax breaks on interest payments, subsidized debt via Fannie and Freddie), to persuade the “bad” to become “good”. That was the carrot; the stick was the highest rate of incarceration of any developed country in the world.

6: Greenspan should have been the “Checks & Balances”

The American system of democracy, which was once so revered that America went to war to bring this path to nirvana to the rest of the world, is founded on the idea of “checks and balances”. That’s fine in principle, until there is pork for all.

Greenspan makes two telling points; the first is how George Bush never stood up against Congress, unlike Gerry Ford who stood up against Congress all the time. That’s not “checks and balances”, George Bush talked tough a lot, but underneath he was a weak man who compromised time and again to the whims of the pork-machine.

The second point that Greenspan makes very clearly is that when then budget surpluses at the end of the Clinton administration and the beginning of the Bush administration started to roll in, he was strongly pushing for the budget surplus at that time, to be used to pay off the National Debt.

My long-time involvement in Social Security reform had made me all too aware that, in the not-too-far-off future, Social Security and Medicare would face demands in the trillions of dollars… The most effective policy would be to pay down debt…

He fully supported President Clinton’s “necessary measures” to use the budget surplus to pay down debt, and he recalls commenting in 1999 to Gene Sperling who was involved in that initiative:

“I’m amazed; you’ve found a way to make debt reduction politically attractive”.

He was unsuccessful, and the reason was that Congress and the President had the power, Greenspan after all, was just an appointed funnctionnaire.

7: Greenspan should have seen the problem coming; and should-have done something!!


I noticed that Michael Burry was out in print the other day, saying that Greenspan should have recognized there was a housing bubble and “Done Something”.

OK…so why didn’t Michael Burry, who had the superb intellect to recognise what was going on starting in early 2005…”DO SOMETHING”? He didn’t petition Greenspan, or write Blogs. What he did was to make himself $100 million and make his investors $700 million.

Of course that’s the “American-Way”, if you see your neighbour’s house starting to burn down do you:

a):  Call the Fire Brigade?

b):  Grab a bucket and try and put it out?

c):  Do none of the above and buy as many “naked” insurance policies as you can lay your hands on before anyone else notices?

Michael Burry did (c).

And we admire him; he is the good-guy.

Greenspan was aware of “bubbles” and troubled by them. He “invented” the words “irrational exuberance” long before the bust, and he was concerned about the “froth” in the housing market.

But as far as he was concerned, he only had two tools, the first was to control the amount of liquidity by playing with the base-rate, and the second, he thought, was that he could print more fiat money if needed, as a last resort.

Those were the tools used by Bernake; when faced with a crisis (once he blatedly realised there was one), first he lowered the base-rate, then he “printed money” to feed out of the discount window and to “buy” what are probably worthless (or almost worthless) “toxic assets” at a price much higher than the market would bear.

That strategy had worked for Greenspan in 1987. It had worked after the buts; and it had worked after the paralysis that hit the economy following the 9/11 attacks. Greenspan reflects that “sure he could have pushed the base rate up to 10% when he saw a bubble approaching in one sector or another; that would have stopped everything. But he was uncertain about how to know if a bubble was blowing, and in any case, his strategy was to be around to get things on track after they blew.

Except that strategy did not work out very well in 2008/9.

George Soros has pointed out that the bubble could have been forestalled if the SEC had put a moratorium on new IPO’s, and had for example, required that newly listed companies demonstrate some semblance of a coherent business-plan (profits would have been nice), before they listed.  But that was something the SEC could have done, the Fed had (and has) no power to do that.

Soros also points out (as I did), that the way to control a housing bubble is to mandate limits on LTV on mortgages and also (draconian as it may sound) to limit the amount of money that banks can lend to real-estate. That’s what Hong Kong has been doing for years, and they have avoided serious bubbles (the 70% drop starting in 1997 was a function of nominal GDP tanking, less than 20% of that was due to a bubble popping).

But Greenspan did not have the authority to do that, even if he had wanted to.

Regardless, he didn’t want to do anything about house prices and his views at the time are clearly expressed, and it is clear that he simply did not “get it”. 

He acknowledges that between 2002 and 2005 there was a “bit of froth”, and he acknowledges also that there was a “risk”, he concludes:

But I believed then, as I do now (in 2006) that the benefits of broadened home ownership are worth the risk. Protection of property rights, so critical to a market economy, requires a critical mass of home ownership, to sustain political support.

Greenspan got it wrong; leaving aside the flawed logic that “a market economy…requires a critical mass of home ownership”… (Err….why?)…he was not the only one to have muddle-headed ideas on how increasing the cost of housing could help poor people afford to buy houses would “sustain political support” (arranging for the price to go down might have helped more).

But in one sense he was right, when 70% of the voters own houses, what they want, and what they vote for; is higher house prices…and that’s what they got.

That’s democracy in action. And who was Alan Greenspan, an un-elected functionary, to challenge the policies of President Bush, and President Clinton before him? Both of those two presidents were absolutely convinced that “increased home ownership” and all that entailed, was “Good for America”.

The argument that Greenspan “Could have- and Should Have,” is that he should have challenged the presidency of America, and gone against the democratically expressed wishes of the majority.

Well he didn’t, he was a “team player” And even though he had the independence to make decisions on monetary policy, as far as he was concerned, he did not have the authority to deny the president on matters of political vision.

It’s worth remarking also that Greenspan retired in January 2006. All of the analysis that has been done on the housing bubble points to the period from the start of 2006 to the slow “popping” of the bubble in late 2007 as the period when the real damage was done.

Plus of course there was securitization, which it is fairly clear, Greenspan never really understood, he certainly didn’t understand that the process of securitization which released $20 trillion of “liquidity” into the US economy from 2000 to 2007, was (a) “competing” with the Fed and (b) not particularly sensitive to short-term interest rates (if at all).

You can blame Greenspan for setting the stage, but 2006 and 2007 was when what happened, really happened; and he wasn’t there, that was Bernake.

The Blame Game  

In one of the House Committee hearing on Oversight and Government Reform, Greenspan stood accused:

“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,”

That’s not fair, America had a housing bubble because that’s what Americans voted for and that’s what their elected Presidents and their Congress sought. All Greenspan did was hold their coats, and say, “Err…are you sure this is a good idea”?

Putting the blame on Alan Greenspan is a cheap shot at someone who served his country diligently, and was probably right more often than he was wrong.

I suspect that history will be kinder to his legacy, than the current consensus.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2010 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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Jack Mullen
27 Aug 10, 13:21

Nice try but Greenspan was certainly responsible for pushing up real estate values after the tech wreck and even contributing to the tech wreck by advocating stocks at the peak with his sermon that stock prices were forecasting even more advances in technology that we could currently see. What hogwash! Then he advocated that people take out adjustable rate mortgages and pushed rates so low that real estate speculation was off to the races. When home prices soared Greenspan still preached about potential deflation and said the home price rise was due to immigration. More hogwash. Then to top it off, Greenspan lowered rates in June of 2003 after the Irag war was over. This was probably the dumbest move in the history of the Fed. Greenspan totally deserves to be humiliated for what he did and needs to admit responsibility for what he cannot see himself but others can.

Jack Mullen

A Fed watcher for 35 years

Shelby Moore
27 Aug 10, 15:15

Not Greenspan, you did, yes you the reader:

27 Aug 10, 18:34
Face it, Greenspans legacy is ruined

Was Hoover responsible for the Great Depression?


Was Hoover blamed for it?


Was Hoover blamed for it years and decades after The Great Depression was over?


Will Greenspan be blamed for the current deep recession/great Depression II in spite of what his defenders say and do?

Five will get you ten, and it is the only pony in the race.

Greenspan was the official cheerleader for sub prime loans, keeping interest rates too low too long, refusing to accept that financial markets should be more regulated, completely ignoring that weak or no regulation would lead to bad behavior (wasn‘t it bad behavior in the 1920‘s stock markets that led to the creation of the SEC?) If you remove the entire police force from a city crime is going to skyrocket, removing regulators from overseeing lenders caused the same thing.

Sorry, but history will not be kind to Greenscum, in spite of your feeble defense.

28 Aug 10, 04:31
Austian theory is the medicine of the bubbles keynesian clowns the causes

Was Hoover responsible for the Great Depression?

YES, he was, as Greenspan for this one

Is Greenspan an "Austrian"?

No, he is a keynesian. Austrian theory consders the money expansion the only reason for a cyclical bubble and boost.

If he were Austrian, how it is possible he expanded the monetary base so much? In fact the financial deregulation was a way to expand the monetary base, as hoover did durin the period of the roaring '20.

Pray read Rothbard's "The Great Depression of '29".


28 Aug 10, 23:11
Greenspan bubble

Greenspan will be remembered for blowing the housing bubble that went pop.

I think the greatest lesson learned is that Fed chairmen should ONLY be for ONE term.

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