From Bloomberg:
Greenspan’s ‘Superstar’ Status at Risk as Recession Risks Grow
The next bubble to deflate may be Alan Greenspan’s reputation.
Hailed as perhaps the greatest central banker who ever lived when he left the Federal Reserve in 2006, Greenspan is under attack from critics ranging from the New York Times to economists at the American Enterprise Institute for his handling of the 2000-2005 housing boom. The former Fed chairman has taken to the media to defend himself, writing in the Wall Street Journal and appearing on network television.
“He’s had a bubble reputation that derived from the growth of U.S. household wealth,” said Edward Chancellor, author of “Devil Take the Hindmost: A History of Financial Speculation.” “As that goes down, his standing as a superstar will suffer.”
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“The Fed and the other regulatory agencies were slow on the draw,” Blinder said. “They could have made this debacle substantially smaller, not by better monetary policy, but by better regulatory and supervisory policy.”Desmond Lachman, a former International Monetary Fund official now at the American Enterprise Institute in Washington, blames Greenspan’s libertarian bent for his failure to curb lending abuses: “That philosophy got us into a lot of trouble.”
Greenspan said in the interview that, while the Fed’s bank examiners were hard at work during the mortgage-lending boom, “we have to be realistic about what regulators can and cannot do.”
“It is extremely rare to uncover fraud other than through whistle-blowers,” he said. “You don’t get at it through internal audits, you don’t get it through outside audits and you certainly don’t get it through bank examinations.”
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Some economists, including Blinder, also fault Greenspan for fostering the housing bubble by keeping interest rates too low for too long. The Fed cut its benchmark rate to a 45-year low of 1 percent in June 2003, held it there for a year, then raised it only gradually, in quarter-percentage-point increments.“For that episode of monetary policy, I would probably give him a B, where my overall grade is A or A-plus,” Blinder said.
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Meltzer said that while Greenspan was a “great Fed chairman,” he erred in ignoring warnings about the risks of keeping rates low.“I think he lets himself off much too easy,” Meltzer said, adding that he told Greenspan at the time that he was exaggerating the danger of deflation and thus making a mistake in cutting interest rates to 1 percent.
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Allen Sinai, chief economist at Decision Economics Inc. in New York, said the Fed’s experience is leading other central banks to rethink their approach to asset bubbles.“There is a growing body of thinking in central banking that one should not let these bubbles run and allow them to burst,” he said. “They should lean against them.”
Greenspan disagrees with such a strategy. “There is no evidence that it works other than in computer models,” the former Fed chief said. He noted that the stock market merely leveled off when the Fed doubled interest rates to 6 percent in 1994-95, then resumed its climb.
Greenspan maintained that the housing bubble was inflated not by the Fed’s monetary policy but by a global savings glut that held down long-term interest rates worldwide.
Love this posting…”Greenspan caused the crisis?”
I idolized the man until I read his book and he never acknowleged or explained his zeal for those “alternative financing” vehicles in 2004 or holding the rates down so low allowing in even more inappropriate buyers. “They (the fed.) could have made the debacle substantially smaller, not by monetary policy, but by better regulatory and supervisory policy.” Ah hindsight..
Had he just used the words “irrational exuberance” again..The Age of Turbulence pg. 176 “The concept of irrational exerberance came to me in the bathub one morning..” Didn’t he take a bath during the RE boom?
Cindy
I was in banking back in the 70’s early 80’s. I got into management training under “affirmative action” because the ratio of woman in banking compared to women in management was unworkable. (Also, there was a glut in teaching in my area at the time.)They were elated to find women with degrees -any degree- so I was fast-tracked with UCB but got married, moved to OR, had kids -the rest is history. I returned to teaching so I could be on their schedule and see them once in a while.
But I did learn the basics in those days and all basics were abandoned during this RE boom… Time on the job, salary requirements – ability to repay, vested interest (down payment), credit worthiness,
appraised value,…all of it thrown out the window..That seems like something some big-time bankers should have been aware of…and done something about.
A little historical note…Back in the early 70’s there were women who refused to get a guy a cup of coffee….Boy I would…gladly..cream or sugar…of course they would always go with me later that afternoon when I had to go repo a car…
Greenspan is, was, and will always be a hack. I never understood the admiration because his M.O. is not at all hidden, he is a GOP apparatchik, and the only constituency he has ever concerned himself w/ is the top 2% of the country’s economic population.
He’s not even a decent disciple of Ayn Rand because he was always ready with a bailout when his cronies got in trouble.
How he ever got that glorious reputation I will never know, but there is one thing the Clinton bashers should hit him with, and that is letting the hack stay at the fed when he had the chance to dump him.
Alan Greenspan & ex NJ Supreme Court Justice Brennan, have done more damage to this Country, the Bin Ladin ever dreamed of.
Never underestimate stupid people in numbers.
I don’t see how Greenspan is responsible for the average person who thinks they can get rich quick without any education to back it up. Sure they created the opportunity for a bubble but it was a lot of stupid people singing off and up for the problem.
The same way the internet and online brokerages created a way for there to be a stock market bubble but didn’t create the bubble itself. Like the current housing bubble the stupid in masses created the stock market bubble and it burst because it wasnt founded upon any sound logic behind it.
Again Never underestimate stupid people in numbers.
Thanks to the housing bubble I turned a 15 year negative into a 5 year positive and a few others I knew took advantage of refinancing. But the icing on the cake for me was someone who caused me a small bit of grief then bought near peak market and is probably out 100K-200K from peak and jobless. Karma does exist.