Thursday, March 19, 2009

Alan Greenspan's conflicting arguments to avoid responsibility

An eye-opening exposure of the faulty logic Alan Greenspan uses to defend himself:
ALAN GREENSPAN’s defence of the Federal Reserve in the formation of the housing bubble restates a familiar argument—it raised short-term interest rates but long-term interest rates did not follow, and housing is most sensitive to long-term rates. His proof includes the fact that long-term rates were low worldwide, and that many countries had bigger housing bubbles than America. The housing bubble’s source must therefore be global.

I agree with this analysis but I don’t agree that it exonerates the Fed. In the earlier part of this decade Mr Greenspan asserted on a number of occasions that while America might have local housing bubbles, there was no national housing bubble. Yet he now asserts there was a global housing bubble. It has always puzzled me how he could go from seeing local bubbles to a global bubble without at some point diagnosing a national bubble. By failing to diagnose a national housing bubble until it was already well inflated, the Fed under Mr Greenspan escaped the obligation to do anything about it.
I'm speechless.


  1. Prince William County had a massive bubble, and the sewer-level values in its future are justified.

  2. Greenspan can't talk his way out of history.

  3. "...and housing is most sensitive to long-term rates."

    was that the case during the bubble or was that just the conventional thinking pre-bubble? were all those bubble era ARMs based on long term rates?

  4. Greenspan's irrelevant now. It always boggled my mind the way his opinion was taken as gospel. Now he's finally been revealed as a fool or a fraud, he's just an old guy who has some weird ideas. His career is over and he'll be dead and gone soon. Hopefully he's the last Fed chairman to base his economic philosophy on Ayn Rand.

    And as far as his "housing is most sensitive to long-term rates", that doesn't apply when mortgages are commoditized on a vast scale and traded as securities. The low interest rates he maintained drove capital into the new, poorly regulated area of MBS's and that capital drove the housing bubble, the CDS's that "protected" them and the financial collapse that followed. Greenspan's a joke.

  5. The fact that long-term rates remained high is absolutely irrelevent.

    By keeping short-term rates low, he created incentives to lend.

    For banks, the Borrow-low-Lend-high equation helped pump liquidity/funding into the housing market.

    Greenspan is a clown.