Greenspan: Hate Him, Hate Him
Sir Alan Greenspan was in DC yesterday, defending his legacy before the Financial Crisis Inquiry Commission. James Kwak has a piece up on Sir Alan called “Greenspan: Love Him, Hate Him.” I seriously doubt many people ‘love’ Alan Greenspan these days, as he has been thoroughly discredited. The title of this post is actually more to the point.
James says:
Alan Greenspan is just as maddening in his retirement as he was during his nineteen-year reign over the global economy. Today in his appearance before the Financial Crisis Inquiry Commission (extensive coverage by Shahien Nasiripour and Ryan McCarthy here), Greenspan seems primarily concerned with passing the buck and preserving the remaining shreds of his legacy, a pathetic quest epitomized in his “I was right 70 percent of the time” remark. At the same time, however, he does make some very blunt statements about the financial industry and financial regulation that policymakers should ignore at their peril. (I’m not saying that because Greenspan was wrong before, he must be right now; I’m saying that when the most ardent defender of free financial markets reverses course, that should increase your skepticism toward free financial markets.)
Hmmm. I don’t know how I feel about this quite yet. In any event, Greenspan bears much of the blame for the mess we are in right now. He is perhaps the one figure with the most responsibility for the financial bubbles, crushing private sector debt loads and destruction of the middle class.
The interesting bit about Greenspan is that his role as destroyer of value came in a role which is antithetical to the so-called free markets. The existence of the Federal Reserve and its Open Market Committee is testament to central planning and not to free markets. Read my post More support for the asset-based economy status quo from Sir Alan Greenspan and you can see that Greenspan believes the fed’s role is to actively interfere with the economy in order to support asset prices. That’s not the free market, folks.
And this makes sense. If you listen to Fred Sheehan and the untold story of Alan Greenspan you come away with a picture of a man who is more of a political animal than an ideologue.
Mind you, there is still a lot of the ideology in there. Watch the frontline video in “Frontline – The Warning: Who Knew About the Looming Financial Crisis?” to see how he actively resisted regulation and how he believed that frauds like Bernie Madoff could even be self-regulated. And it was this combination of asymmetric interest rate policy and lax regulation which was so toxic. It seems absurd that you could have the Fed manipulating interest rates and then not have a regulator cop on the beat to make sure everything was held in check.
To Greenspan’s credit, he has changed his tune on some issues. Witness Greenspan: “If they’re too big to fail, they’re too big”. Nonetheless, on the whole, he is not someone I listen to.
The following music video about Sir Alan is from the boys over at Wall Street Cheat Sheet for your amusement.
Greenspan: hate him, hate him.
I never thought I would say anything in favor of Greenspan, but I think he now gets too much blame. Certainly, his performance was horrible, and the actions of the Fed in general are to blame for much that has gone wrong. I just think Greenspan personally gets too much blame because had just about any other mainstream economist been Fed Chairman during this time, they would have done the same things Greenspan did (just maybe not to the same degree).
I would put more blame on orthodox economics. The playbook for just about all mainstream economists is the same. First, lower interest rates agressively at the first sign of trouble. Second, leave rates low unless there are signs of high CPI inflation.
It is playbook that is the problem. Greenspan just pushed the playbook to an absurd extreme.