Alan Greenspan is back, scheduled to appear at the Brookings Institute Friday to deliver a 48-page explanation of why his low interest rates and regulatory neglect did not cause the financial meltdown. The contents of the ex-Fed chief’s apologia have already been released to the press. It’s just more finger-pointing and buck-passing; 48 pages of the-dog-ate-my-homework excuses in Greenspan’s cryptic Fed-speak.
“We had been lulled into a sense of complacency by the modestly negative economic aftermaths of the stock market crash of 1987 and the dotcom boom……Given history, we believed that any declines in home prices would be gradual. Destabilizing debt problems were not perceived to arise under those conditions.”
See? It wasn’t Greenspan’s fault, after all. It was “the savings glut” or the “undercapitalised banks” or some other such nonsense. The bottom line is that everyone else was to blame for everything that went wrong. Everyone except the Teflon Fed chief, that is.
Does Maestro really think he can salvage his battered reputation with this charm offensive?
Greenspan tries to acquit himself on the main charges; that he kept interest rates “too low, too long”, and that his support for deregulation expanded the use of risky financial instruments (derivatives) These are the two main factors which triggered the meltdown. Greenspan defends himself on both counts, without success.
He rejects the idea that low interest rates created the housing bubble because mortgage rates are linked to long-term rates which the Fed doesn’t control. That’s true, but it’s also a poor defense. Everyone knows that tighter monetary policy cools off speculation, forces financial institutions to reduce leverage, and slows credit growth. If the Fed didn’t believe that low rates increase spending, than why would they lower rates every time the economy begins to slow down? Interest rates matter! End of story. Greenspan’s argument isn’t even worthy of a response. It’s ridiculous.
Greenspan also invokes the “global savings glut” claim, which he reiterates at every opportunity. But that’s a feeble defense, too.
Yes, the massive current account deficit is destabilizing and, yes, China and Japan do save “too much” while Americans consume too much, but so what? That’s why we appoint policymakers to intervene when necessary to avoid a global crisis. But, of course, Greenspan doesn’t believe in regulation, because he thinks the market is the manifestation of Ayn Rand’s immortal plan and mere humans shouldn’t interfere in its divine workings.
Greenspan: “There is nothing involved in federal regulation per se which makes it superior to market regulation.” That sums it up nicely, doesn’t it?
Greenspan refused to perform his task as regulator because he was intellectually and morally opposed to regulation. He’s been a consistent Randian on that point. So, naturally, the imbalances and fraud grew until the entire mechanism broke down. It all could have been avoided if Greenspan had done his job.
Greenspan’s conduct was shaped by his anti-government, anti-regulation, laissez faire fanaticism. Ideas have consequences, which is why the country is still in a Depression.
MIKE WHITNEY lives in Washington state. He can be reached at [email protected]