Monday, April 07, 2008

Greenspan's Latest CYA

Greenspan's latest message to the world; here's the executive summary:
'There was nothing the Fed could have done to prevent the housing bubble so we didn't even bother to try.'

8 Comments:

Blogger mountainwatcher said...

Well, there you go.
They didn't know, they couldn't have known.
Even if they had known, there was nothing they could have done.
Nothing they did was wrong.
They did everything right.
Case closed!

Apr 8, 2008, 3:44:00 AM  
Blogger marinite2 said...

I found this rant over at Calculated Risk... perhaps the best written rant in the history of rants:

Anonymous writes:
Related, from the Financial Times

http://blogs.ft.com/wolfforum/20...itics/#more- 124

Alan Greenspan: A response to my critics

from the comments:
"Willem Buiter: Mr Greenspan’s apologia pro vita sua in the Financial Times of Monday, April 7 2008 fails to convince.

The Greenspan Fed (August 1987 – January 2006) did contribute, through excessively lax monetary policy, to the US housing boom that has now turned to bust.

The Greenspan Fed brought us the Greenspan put (now the Greenspan-Bernanke put). This is the aggressive response of the official monetary policy rate to a sharp decline in asset prices (especially stock prices), even though the asset price declines (a) are unlikely to cause future economic activity to decline by more than was required to meet the Fed’s triple mandate and (b) do not convey new information about future economic activity or inflation that would warrant interest rate cuts of this magnitude.

To me, this indicates that the Fed has been co-opted by Wall Street - the Fed has internalised the objectives, concerns, world view and fears of the financial community to an excessive degree. This socialisation into a partial and often highly distorted perception of reality is unhealthy and dangerous.

The Greenspan Fed failed to appreciate the downside of rapid securitisation during the first half of this decade and acted exclusively as a cheerleader for the undoubted virtues of securitisation.

The Greenspan Fed displayed a naive faith in the self-regulating and self-policing properties of financial markets and private financial institutions.

The Greenspan Fed, by enabling the rescue of Long-term capital management in 1998, acted as a moral hazard incubator. Both before and after LTCM, the Greenspan Fed failed to press for a special insolvency resolution regime with prompt corrective action features for all highly leveraged private financial institutions that were likely to be deemed too big and too systemically important to fail. This demonstrates either bad judgement or regulatory capture. The moral hazard-fraught rescue of Bear Stearns is the lineal descendant of the LTCM bailout.

During his years as Chairman of the Federal Reserve Board, Alan Greenspan’s statements reflected a partial (in every sense of the world) understanding of how free competitive markets based on private ownership work. This partial understanding guided his actions as monetary policy maker and financial regulator.

Mr Greenspan consistently saw but half the picture when it came to what makes competitive market capitalism work. He recognised the central roles of greed, self-interest and competition. He failed to appreciate the complementary roles of non-strategic/opportunistic forms of altruism, honesty, trustworthiness, solidarity and cooperation.

He emphasized self-regulation, spontaneous order and the disciplining effect of reputation. He did not understand the weakness of reputational concerns as a (self-)enforcement mechanism ensuring good behaviour, when credible commitment is, at best, limited in a world with short horizons and easy exits.

He failed to appreciate the essential role external/third-party (i.e. state) enforcement of laws, rules and regulations, and the indispensability of collective action when faced with the threat of the breakdown of trust and confidence.

By overselling, at home and all over the world, the virtues of American-style transactions-based financial capitalism and light-touch regulation, Mr. Greenspan has done more to harm the cause of decentralised, competitive market-based financial systems based on private ownership, than even Charles Ponzi.

Alan Greenspan’s period as Chairman of the Board of Governors of the Federal Reserve System represents to me the nadir of central banking in advanced economic-financial systems during modern times. While monetary policy was only mildly incompetent, the regulatory failures were horrendous. The US and the world economy will pay the price for Mr Greenspan’s misjudgements and errors for years, perhaps decades, to come."
Anonymous | 04.08.08 - 5:58 pm |

Apr 8, 2008, 5:18:00 PM  
Blogger marinite2 said...

Must-see video (Volcker Says Fed's Bear Loan Reaches Edge of Legal Power April 8 (Bloomberg)) of Paul Volcker schooling today's Fed, the broken financial system, out of control compensation, you name it:

http://www.bloomberg.com/news/av/

Apr 8, 2008, 5:45:00 PM  
Blogger Alarming said...

OK, the Fed is printing money like crazy to rescue Wall Street. The main street is suffering from the rate cut effect. Oil is above $110and rice price in Asia has risen to the highest level. Hyper inflation is right here. Living cost has risen 30-40%. Is there a restriction on Fed from printing money? Do people worry about the Fed's over growing power?

Apr 9, 2008, 4:48:00 PM  
Blogger Grandis said...

"What experience and history teach is this--that people and governments never have learned anything from history, or acted on principles deduced from it."

-G. W. F. Hegel,

Apr 10, 2008, 8:45:00 AM  
Blogger Matthew said...

Greenspan over the last 10 years of his time at the Fed was far more interested in hyping his image than doing his job.. He had himself cast well as the sage of sages with cryptic comments on the status of the economy, markets and money supply.. I'm quite certain he spent as much time crafting his cute speaches and innuendos to Congress as he did analyzing data and doing his job.

He didn't then, nor does he now, have the mental capacity or integrity to see this for what it is or his role in helping create it.. He's got to sell a few more books and protect his legacy after all..

Apr 13, 2008, 9:07:00 AM  
Blogger marin_explorer said...

Well that "rant" from the FT is one of the more well-composed I've seen.

I'm imagining a scenario where AG put down his celebratory martini for a moment to write that he essentially did nothing for the US--save for spotting liquidity to Wall St and retail consumption. "The Maestro" has spoken, and the demographic that was once "tuned out" is now "cashed out", stampeding towards the exit on our economy. America's next stop: the proverbial toilet--because those who could have made a difference already "got theirs". Well done.

Apr 14, 2008, 2:02:00 PM  
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May 9, 2008, 1:49:00 PM  

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