Wednesday, March 11, 2009

Greenspan says the housing bubble's not his fault

Alan Greenspan has an article in The Wall Street Journal today, saying he didn't create the housing bubble or the financial crisis. (Let's not forget he used to deny the very existence of a housing bubble.)

While I agree that the Fed didn't initially cause the housing bubble, I disagree that the Fed was powerless to do anything about it. For example, an inverted yield curve (short-term rates higher than long-term rates) would have stopped it real quick. What bank is going to issue mortgages at 5% if they can get a 6% return on short-term government bonds? The Fed chairman also can use the bully pulpit. Greenspan should have clearly and forcefully said that people buying homes at current prices would lose significant amounts of money.

To be fair, Greenspan was far from alone in believing his actions were the correct ones. The Fed's policies earlier in this decade were not the failings of a single man, but a general failure of the economics profession.

3 comments:

  1. Funny that Greenspan doesn't mention that he was urging people to buy ARMs in 2004.

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  2. Love the way all these rich guys, Paulson, Greenspan, are still sitting on their millions while others suffer the consequences of their decision-making errors.

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