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Greenspan as the Chairman of Financial Politburo

From Maestro to Cornered Rat: a Story of Enforcer of Bizarre Economic Doctrine which Brought the Country to its Knees

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What the hell is 'libertarian' about someone who was voluntarily employed as the head commissar of a secretive, quasi-private/quasi-governmental central banking cartel that monopolizes the issuance of our currency and credit through state coercion?

John Stewart: "John, in your expert opinion, what has caused this steep decline in the value of the dollar?"

John Hodgman: "I would have to say God. I mean, it's right there on the dollar, 'In God We Trust.' We counted on Him, and we were fooled. I mean, what kind of Benevolent Deity would allow our money to be equal to that of Canada?"

- The Daily Show

I once described Alan Greenspan as being like a man who suggests leaving the barn door ajar, and then - after the horse is gone - delivers a lecture on the importance of keeping your animals properly locked up.

Paul Krugman in NYT

"...I am shocked - shocked, there is gambling going on in this establishment...."

" are your winnings..."

-- exchange between Humphrey Bogart & Claude Rains in Casablanca

Greenspan Shocked Disbelief

History repeats itself, first as tragedy, second as farce. Those immortal Marx's words are fully applicable to Chairman Greenspan.

The book actually reads as a typical Soviet Politburo memoir, partially ghost written, mostly hagiographic, and filled with spicy animosity toward former peers. Nixon's portrait (the latter shrewdly did not appoint Greenspan to the coveted position) in the book is actually quite reveling about Greeenspan's personality. Like Bolshevik's theories, neo-classical economic theories Greenspan preached have the power of shaping (and distorting) the economics of the country.

In this sense Greenspan, like members of Soviet Politburo, played a destructive role by forcing the economy of the USA (mal)adapt to a superficially attractive but unrealistic economic doctrine. The extremes and absurdities of financial market deregulation of the last twenty years neatly correspond to the extremes of Bolsheviks policies after they came to power in perfect "tragedy vs. farce" fashion. As in "extremes meet" cases, the promise of brighter economic future brought lemmings on board and (later) off the cliff (extreme centralization and restoration of feudal rule under smoke screen of leash for banksters and parasitic rents in case of Bolshevism, extreme deregulation and restoration of the "Law of Jungles" under smoke screen of "free markets" propaganda in case of Greenspan).

Greenspan's commonality with members of Soviet Politburo runs deeper then the merely superficial similarities such as being over the age of 60 when elected to the position (Greenspan was 61 when he was appointed by Reagan as Fed Chairman). First of all extremes meet, In biting satire The Great Depression and the Revolution of 2017 L. Randall Wray suggested that

An early disciple of Ayn Rand, Greenspan's recent testimonies now include obscure quotes from Marx, Lenin, and Rosa Luxemburg.

In comments to the post DownSouth observed that:

This prediction is quite realistic and conforms to the nature of those with a true believer personality. True believers easily flip from one pernicious mythology to some other mythology, equally as insidious.

Eric Hoffer explored the phenomenon in his book The True Beleiver.

A core principle in the book is Hoffer's insight that mass movements are interchangeable; he notes fanatical Nazis later becoming fanatical Communists, fanatical Communists later becoming fanatical anti-Communists, and Saul, persecutor of Christians, becoming Paul, a fanatical Christian. For the true believer the substance of the mass movement isn't so important as that they are part of that movement.

First of all, as revealed by his memoir, the personality of Greenspan pretty well resembles the personality of members of Soviet Politburo. His failure is also very similar and is an apt manifestation of the failure of a broader class of economic messianism and a lack of humility in the face of the complexity of the economic world, coupled with an aggressive, quasi-platonic desire to shape the world according to the particular economic ideal.

Among striking commonalities:

All this makes reading Greenspan's memoir much like reading a former Soviet Politburo members memoir. Somewhat fascinating but equally disturbing.

One amusing detail is that he himself is blissfully unaware of the stark similarities of his polition to the position of Chairman of the Politburo which makes reading his assessment of Soviet economic nomenklatura really funny and worth the price of admission. Actually it's just one cent in the used hardcover market, which just about the fair market price of a typical memoir of any discredited Soviet Politburo member.

All in all the book is about the "triumph and tragedy" of a pretty talented person who betrayed everything to achieve career success. A cautionary tale about the value of moderation in personal pursuits and desires as well as importance of self-knowledge in personal success and happiness.

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I doubt Greenspan is a fool or an idiot. He is a self serving, social climbing, power mad, evil man.

He knew full well he was wrecking the economy as much as Clinton and Bush I- Bush II did, and as much as Angelo Mozillo et al, and the GS/JPM/wrecking crew did.

As long as they control wealth and power, they do not care who suffers as a result, or if they bring their own country to ruin.

Take Hitler, Goering, and Goebbels out of their uniforms, and dress them in Brooks Brothers suits. Then imagine they decide to use stealth, the financial markets, and the political process instead of the Wehrmacht and Luftwaffe to destroy the world.

No War Crimes trials and you get to enjoy your loot in an (for you) intact society. That sums it up for me.

jjay in comment on Big Picture June 19th, 2010

[Sep 07, 2019] "Certain key unknown figures in the Federal Reserve may have 'conspired' with key unknown figures at the Bank of New York to create a situation where $240 billion in off balance sheet securities created in 1991 as part of an official covert operation to overthrow the Soviet Union, could be cleared without publicly acknowledging their existence.

Sep 07, 2019 |

Tunga , 12 minutes ago link

Oh those securities!

""Certain key unknown figures in the Federal Reserve may have 'conspired' with key unknown figures at the Bank of New York to create a situation where $240 billion in off balance sheet securities created in 1991 as part of an official covert operation to overthrow the Soviet Union, could be cleared without publicly acknowledging their existence. These securities, originally managed by Cantor Fitzgerald, were cleared and settled in the aftermath of September 11th

through the BoNY. The $100 billion account balance bubble reported by the Wall Street Journalas being experienced in the BoNY was tip of a three day operation, when these securities were moved from off-balance-sheet to the balance sheet.

Tunga , 12 minutes ago link

pparalegal , 3 minutes ago link

Oops. Building 7 and all the records gone in a collapsed vertical pancake. What a shame.

[Feb 13, 2017] Under Maestro Greenspan Fed as an institution became this sense not so dissimilar to such post WWII financial institutions as IMF and World Bank (which became the key instruments for implementing Washington consensus ). It became a very effective enforcer of the neoliberalization of the country.

Feb 13, 2017 |
llisa2u2, February 13, 2017 at 10:34 AM
Just finished reading a great little book, THE ECONOMIC PINCH, by C.A.Lindbergh, SR. Here's a link to it:

Yes, the writing style is a bit dated, but it gives the bottom-line in really clear, well-written English.

It's a GREAT little book, should be required reading with proof by some book report written by each economist, before their being allowed any public discussion about the FEDERAL RESERVE.

It's probably more relevant today for all U.S. citizens than it was back in the early 1900's.

Sanjait, February 13, 2017 at 11:10 AM
The Great Moderation era Fed has some good aspects but has fundamentally failed to understand how its obsession with keeping inflation from ever even thinking abut going up has suppressed wages and caused labor hysteresis.

I think they assume that all those problems just equilibriate away across the cycle but the reality is not that.

So definitely it could and should be better.

But .. that doesn't make every proposal to change it a good one, or even a coherent one. Nor does it justify the attitude that we should just blow everything up and hope something better happens. Those bad arguments are what got us Trump, and at no point should reasonable people pander to such bad arguments, or confuse the fact that bad arguments are widely held with the notion that they aren't bad.

libezkova : February 13, 2017 at 03:07 PM , 2017 at 03:07 PM
Fed independence was always a convenient fiction. This is an independence limited to implementing neoliberal policies.

Which was done under "Maestro" Greenspan. This Ann Rand follower and staunch believer in unrestrained "free market" (which means the law of jungles) subverted the institution and pressured the Presidents who deviated from the "Party line" (and one time Bill Clinton tried). This is the extent he was a Maestro. Later, after 2008, Maestro turned into cornered rat, but this is quite another story.

Under Maestro Greenspan Fed as an institution became not so dissimilar to such post WWII financial institutions as IMF and World Bank (which became the key instruments for implementing "Washington consensus"). It became a very effective enforcer of the neoliberalization of the country.

[Oct 01, 2016] jonny bakho

Oct 01, 2016 |
... September 30, 2016 at 06:17 AM " He got AG to agree to allow unemployment to drop to 4% in exchange for raising taxes and dropping the middle class tax cuts. "

That's untrue. Greenspan blackmailed Clinton over interest rates. He and Rubin told Clinton that the bond market would give them lower rates in exchange for deficit reduction. In reality it was up to Greenspan whether or not to raise rates.

That's why James Carville famously said:

"I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."

There is a lot of misinformation about this.

"From October 1993 to November 1994 US 10-year yields climbed from 5.2% to just over 8.0% fueled by concerns about federal spending. With some guidance from Robert Rubin, the Clinton Administration and Congress made an effort to reduce the deficit. 10-year yields dropped to approximately 4% by November 1998."

The only problem is inflation. The Fed could engage in bond-buying and bring down yields.

Greenspan didn't allow unemployment to get below 4 percent until the late 90s. As Dean Baker has pointed out, Democratic governors on the FOMC like Yellen and Blinder wanted to raise rates but Greenspan wasn't worried about inflation b/c of productivity gains and financial crises over seas.

I followed all of this in real time and so remember it very well.

[May 15, 2015] Links for 05-15-15

May 15, 2015 | Economist's View

anne said...

May 15, 2015

When Maestros Cry
By Paul Krugman


Mark Thoma, * today in liberal fascism: Apparently I'm part of the liberal speech police, blocking debate on important subjects, because I criticized Alan Greenspan for planning to headline a goldbug conference taking place next to the Fed's annual Jackson Hole event. And it's true - I used vicious, undemocratic tactics like calling attention to Greenspan's record of bad predictions. I even used sarcasm and ridicule. ** And you know who else used sarcasm and ridicule? (Hitler) The Piranha Brothers.

It's still quite amazing to see how thin-skinned such people are, their outraged cries of ill-treatment when faced with any kind of pushback (and most of all, of course, anyone who makes them look silly.) But there's an extra bonus from this article: confirmation of just how bad this particular group is on economic substance, and how truly inappropriate Greenspan's planned participation was.

For the author of the article declares Greenspan obviously correct to issue dire warnings about Fed policies - after all, the dollar's value was dropping in terms of gold, which he takes to be self-evidently a sign of big trouble.

But the Fed doesn't care about the price of gold, and its indifference has been justified by history. Gold has been anything but a stable store of value: if you bought gold in the late 1970s the real value of your investment fell 60 percent over the next few years. Nor has gold been a predictor of future inflation - actually, even in the 70s it was a lagging, not leading, indicator, and in recent years it was telling us nothing at all about inflation, past or future.

So Greenspan was planning to talk to a bunch of monetary cranks with a sideline in anti-gay activism (or maybe it's the other way around). To do so is, of course, his right; to criticize him for his decision, and make fun of his bad judgment, is mine.



Survey Small business owners appear poised to flip the switch to growth mode

10/25/2013 | Hoocoodanode


I committed a crime today

bought Greenspan's book


tg wrote:

I committed a crime today

bought Greenspan's book

You're supposed to lend that from the library or from that dimly lit storefront with booths and men in raincoats.


robj wrote:

ou're supposed to lend that from the library or from that dimly lit storefront with booths and men in raincoats.


It was there at Costco and in a moment of weakness it found itself into my basket...

[Oct 27, 2013] Economist's View Democrats Will Have to Swallow Entitlement Cuts

Thirty years ago Reagan with Tip O'Neill, Moynihan and Greenspan sold increased age and increased payroll taxes to keep SS for the Boomers.

foosion said...

Trading permanent changes in Social Security and Medicare for some short-term spending is stupid, both as a matter of policy and politics.

It's long been a mistake to sell your birthright for a mess of pottage.

Darrell said in reply to foosion...

Except that we can get the spending now, and roll back the cuts later.

Any cuts to SS and MC will be targeted for 10+ years from now, as you need at least half of boomer support.

A few years from now, demographics will better support rolling back the cuts.

ilsm said in reply to Darrell...

It is the death of a thousand cuts.

Thirty years ago Reagan with Tip O'Neill, Moynihan and Greenspan sold increased age and increased payroll taxes to keep SS for the Boomers.

That the extra money was squandered!

No benefit cuts and no payroll increases, they will be squandered and another "entitlement" crisis will be 10 years off.

Don't appease them they have been after SS since 1937.

ilsm said in reply to Aaron...

Put politicians aside, their tool is misdirection. 40% of US government outlays are other than "mandatory" and all projections keep them steady even though the pentagon's half of the 40% is twice the burden it was in 2000.

The largest part of the safety net trust funds' "t-bills" paid for war profits, more money for the funds will be more of the same and 5 years in the future there will be more about "actuarial soundness".

The answer to long term actuarial "stability" of medicare and social security is not short term revenue increases or safety net outlay "reform". That extra cash hides deficits, misspending for war profiteers' wars of choice, tax cuts and crony capitalism.

If anyone really cares about long term stability of the great society build the middle class, eliminate war profiteering, shutter the empire, and raise progressive taxes.

First step, tell the pentagon safety net for the needy is more important than the health of the war industry and a new occupation command in Africa.

What Christiaan Hofman said!

Michael Pettengill -> Min...

When I was a teen in the 50s, SS wasn't going to exist by the time I got old, but next month I qualify for full SS and the claim is it will run out of money in 18-20 years and then only pay 75% of the stated benefit.

But the irony is President Reagan is the hero of those who seek to destroy SS, but three decades ago he said:

"Today, all of us can look each other square in the eye and say, ``We kept our promises.'' We promised that we would protect the financial integrity of social security. We have. We promised that we would protect beneficiaries against any loss in current benefits. We have. And we promised to attend to the needs of those still working, not only those Americans nearing retirement but young people just entering the labor force. And we've done that, too.
"So, today we see an issue that once divided and frightened so many people now uniting us. Our elderly need no longer fear that the checks they depend on will be stopped or reduced. These amendments protect them. Americans of middle age need no longer worry whether their career-long investment will pay off. These amendments guarantee it. And younger people can feel confident that social security will still be around when they need it to cushion their retirement.

"These amendments reaffirm the commitment of our government to the performance and stability of social security. It was nearly 50 years ago when, under the leadership of Franklin Delano Roosevelt, the American people reached a great turning point, setting up the social security system. F. D. R. spoke then of an era of startling industrial changes that tended more and more to make life insecure. It was his belief that the system can furnish only a base upon which each one of our citizens may build his individual security through his own individual efforts. Today we reaffirm Franklin Roosevelt's commitment that social security must always provide a secure and stable base so that older Americans may live in dignity."

EMichael said...

The problem is that the right has grouped SS and Medicare together under entitlements, and from the posts in here, it seems the left has fallen for their trap.

We have to separate those two programs when we talk about entitlements. When we allow them to be lumped together, we make both look like they are fundamentally flawed and need to be fixed. That is not the case.

99% of our problem has been the escalation of healthcare costs. So let's talk about those and Medicare and leave SS out of the mix.

We play into the hands(budget scare) of the right when we allow the two programs to be joined at the hip.

ilsm said in reply to EMichael...

On the 8 Nov the past two year GAO's financial audit of the public debt is released for the FY just completed on 30 Sep.

Waiting to see this years!

Last year SS was up $87B to `$2.6T, while medicare was down to ~$400B in holdings. All that represents money that should not have gone to phony wars!!

The other two big federal pensions have combined ~$1.3T with the OPM having a tiny bit from employee contribution the rest is appropriated which keeps those funds actuarially solvent.

Maybe a bit of appropriated funds for Grandma instead of Lockheed.

Min said in reply to EMichael...

"99% of our problem has been the escalation of healthcare costs. So let's talk about those and Medicare and leave SS out of the mix."

Social Security is neither broke nor broken.

As for Medicare and medical costs, Medicare is part of the solution. It is much more efficient than private medical insurance. It is part of the solution, not part of the problem.

Roger Gathman said in reply to drb48...

Yes yes and yes. Jamie Galbraith has been pushing for increasing ss benefits for a while - in fact, it would have been a great way to inject money into the system in this period of slumpiness. And of course the cost of medicine in the US is a scandal, as compared with other countries. If competition is supposed to be about the efficiencies gained by letting the deregulated price system work its magic - than the US system must be the most uncompetitive in the world. Or perhaps the price system doesn't reflect competitiveness, and perhaps the US medical system persistently pretends to be a free market one when it is of course a guild system, with a government supported and enforced guild making up the healthcare labor force. The argument about socializing or not socializing medicine is, frankly, simply ridiculous when you have a guild controlling medicine.

I think AARP should simply run ads that are simply 30 seconds of President Reagan saying what he said April 20, 1983. That might get Reagan redefined as a radical leftist socialist Democrat....

Paul Krugman Addicted to the Apocalypse

Economist's View

As I've already suggested, there are two remarkable things about this kind of doomsaying. ... On the Chicken Little aspect: It's actually awesome, in a way, to realize how long cries of looming disaster have filled our airwaves and op-ed pages.

For example, I just reread an op-ed article by Alan Greenspan ... warning that our budget deficit will lead to soaring inflation and interest rates ... published in June 2010... - and both inflation and interest rates remain low. So has the ex-Maestro reconsidered his views after having been so wrong for so long? Not a bit.

ilsm said in reply to Darryl FKA Ron...

Debt is hoarded (Greenspan's handwringing about not enough "savings" during his great recessions) cash, which had nothing to do which the US G should have collected as taxes, and should not spent it spent on pentagon troughers who want to make all of Africa look like Kosovo with huge new Camp Bondsteels rather than US' infrastructure.

Second Best :

As long as debt can be connected to entitlement takers and a declining standard of living in the public mind, chicken littles of an apocalypse will live on.

Inflation and interest rates are secondary, employed by an entrenched class of economic predators whose audience needs them like patients who need doctors with blood sucking leeches.

They always feel better after each session of treatment, never accusing their doctors of being the placebo quacks they are.

Darryl FKA Ron said in reply to Second Best...

[Yep, but especially:]

"As long as debt can be connected to entitlement takers and a declining standard of living in the public mind, chicken littles of an apocalypse will live on."

[It must be hard wired into the operant conditioning that we get in public school.

Let's see now was that more sarcastic or more cynical? Dunno.]

ilsm said in reply to Second Best...

They always have to "win" and they always have to parade the effects on losers/moochers to keep their "good serfs" afraid.

In the Simpson Bowles mind: It has to be: "Nothing but pain and no gain for "those people".

"The comfort of the rich depends on an abundant supply of the poor"

Voltaire observed a "Wonderland" before Carroll jotted it down.

kharris :

Meanwhile, Reuters suggests the popularity of wrong thinking is as great as ever:


ilsm said in reply to kharris...

If you don't have goals, and "keep score you are just practicing" ruining your country.

Don't question what they want to keep score of!

Like the way the Pentagon viewed Dr. Deming and TQM.

Darryl FKA Ron said in reply to ilsm...

If you don't have goals, and "keep score you are just practicing" ruining your country.

[LOL as they say :<) ]

Like the way the Pentagon viewed Dr. Deming and TQM.

[DOn't know about the Pentagon and TQM, but I am a fan of TQM done well, otherwise it is just another boondoggle.]

Darrell said in reply to Darryl FKA Ron...

Deleveraging has been very slow.

I should copy these down so I don't have to relook them up every time, as it seems people are missing them.

Household debt: $1.4T
# of households: 82 million
median household income: $17K
debt/#/income = 1.0

Household debt: $7T
# of households: 108 million
median household income: $40K
debt/#/income = 1.6

Household debt: $13.8T
# of households: 117 million
median household income: $48K
debt/#/income = 2.4

Household debt: $13T
# of households: 122 million
median household income: $50K
debt/#/income = 2.1

So, we're just over 1/3rd of the way back to 2000 debt levels, and 1/5th of the way back to 1980 debt levels.

Let's say household's debt starts increasing at $700B a year, added to $200B fed deficits and $700B business debt. That is almost 10% GDP, the bare minimum debt increase needed to keep our trade imbalance plagued economy growing.

Well, in 5 years (assuming 1% pop growth and 2% wage increase) we'd be at

Hypothetical 2018
Household debt: $16.5T
# of households: 128 million
median household income: $55K
debt/#/income = 2.35

So, are you speculating that we're going to go into cyclical household debt where we spend 5 yeas surging to 2.4 debt/income, then 5 years deleveraging down to 2.1, repeat?

I sure hope not!

david s :

You don't become powerful in Washington because you understand macroeconomics. You become powerful by being likable to the right people and understanding what sells. Look at Obama.

Darrell said in reply to david s...

It is about message, and your ability to sell truthiness.

Actual truth just gets in the way most of the time.

kthomas said in reply to david s...

The article is not about power. It's about people who routinely give you me and everyone else a load of bullshit each time they open their mouths, AND STILL GET IT WRONG AND STILL GET PUBLISHED! Pay attention.

Darrell said in reply to kthomas...


Hmmmm.... not to step into the middle of a fail beat-down, but perhaps you should reread. The article mentions a hedge fund manager, a couple senators, and a former Fed chairman.

It isn't really about getting published, and is more about power.

Perhaps you were projecting your personal opinions onto the article.

[Oct 22, 2013] Two Ways of Looking at a Randite by Brad DeLong

Alan Greenspan's publisher did not send me a copy of his new The Map and the Territory. So at the moment I am running on the two different books read by Larry Summers and Steve Pearlstein:

Larry Summers: The Map and the Territory:

It was my privilege to work closely with Alan Greenspan for the eight years I served at the Treasury during the Clinton administration. His new book, The Map and the Territory, brings me back to fond memories of our conversations over the years. I haven't always agreed with my friend but he has always left me wiser and with something to ponder. I have been struck… by the way… his approach… draws both on commitments to an individualist, libertarian philosophy and on extensive and deep immersion in economic statistics…. The range of topics and arguments makes this book a very important statement, whether one ultimately agrees or disagrees with the author. I found myself doing plenty of both. Greenspan's range, vision and boldness is especially important at a time like the present, when Washington is preoccupied with the political and petty….

Now that we have seen… real turbulence… Greenspan has much to reflect on… acknowledges having changed his mind… in particular by greatly elevating the significance he attaches to "animal spirits"… he sees a stronger warrant for regulation--particularly with respect to the capital and liquidity position of major financial institutions…. In what will come as a surprise to some, he is very worried about the problem of "too big to fail"…. On this he is surely right…. Strikingly, Greenspan joins many of his traditional opponents in suggesting that "too big to fail" can very easily lead to crony capitalism….

One of the areas where Greenspan has been most extensively criticised is in the failure of the Federal Reserve to do a better job of protecting consumers in the run-up to the financial crisis. He sidesteps the issue by asserting his focus on regulation, rather than fraud issues. But matters may not be so simple. An essential insight of the new sub-field of behavioural economics that Greenspan quotes approvingly is that people can be manipulated without being defrauded. If, as JK Galbraith observed, "Conscience is the knowledge that someone is watching", then questions of regulation and fraud are closely related…

Steve Pearlstein: Alan Greenspan still thinks he's right:

Greenspan's … "The Map and the Territory" is meant to be an account of his intellectual journey to discover why, as the nation's top bank regulator and its most famous economic prognosticator, he failed to see it all coming. Why had the markets, which for centuries had been so adept at self-correction, failed this time? Why had bank executives, with every incentive to protect their fortunes and reputations, knowingly gambled it all away? What we find, however, is that Greenspan's journey of discovery brings him right back to where he began--to an unshakable faith in free markets, an antipathy toward market regulation, and a conviction that progressive taxes and social spending are to blame for slow growth, stagnant wages and exploding deficits…. Greenspan… gave the green light to bank consolidation… pushed financial deregulation… advocated new global rules that would have reduced bank capital reserves… blocked efforts to crack down on abusive subprime lending. But if you are looking for him to accept any responsibility for the crisis that ensued, you will be sorely disappointed.

Instead, he shifts the blame to subsequent policymakers for bailing out the financial system and imposing "massive" new regulation that, he asserts without proof, has cast "a pall of uncertainty" over the economy and ushered in an era of "crony capitalism." "Unless we reverse the inexorable increase in the role of government," he warns ominously, in language he could have lifted from the Romney-Ryan campaign site, "we will surely lose our pre-eminence as the undisputed global leader."…

His journey begins with a reconsideration of… "animal spirits"… comes to a new appreciation of the danger posed by extended periods of economic stability, which lull people to take undue risks… [the] hypothesis… [of] left-wing economist Hyman Minsky, whom Greenspan curiously fails to mention…. Greenspan stops to drink the waters of behavioral economics… with the wonderment of someone who has just discovered the existence of Costco or the iPhone….

Greenspan glides through the list without the slightest sign he might have had something to do with those developments…. A good deal of "The Map and the Territory" is given over to attacking… Dodd-Frank…. If he'd looked more closely at Dodd-Frank, he would have discovered that his preferred method for dealing with failing banks is precisely the one set out in the new law…

Two very different books, no?

Larry appears to be in "I'll take what I can get" mode. He pockets Greenspan's new-found appreciation of herd behavior, positive-feedback investment strategies, "animal spirits", and the hypothesis-that-dare-not-speak-its-Minskyite-name-of-financial-instability to deploy against rational-expectations economists who claim that even the most egregious bubbles and crashes are simply rational revisions of optimal forecasts in light of new information about risks and their utility costs. He pockets Greenspan's criticisms of "too big to fail" institutions and deploys it as an endorsement by Greenspan of the push for greater financial regulation and as a call for breaking the political power of Wall Street.

Steve replaces Larry's Hermaneutic Hermeneutic of Goodwill with a Hermaneutics Hermeneutics of Profound Suspicion. Steve interprets Greenspan's new appreciation for Keynes and the unmentioned Minsky as the minimal whispering of reality outside Greenspan's Fortress of Epistemic Closure--the "wonderment of someone who has just discovered the existence of Costco or the iPhone".

And Steve focuses on how Greenspan's core commitments--"to an unshakable faith in free markets, an antipathy toward market regulation, and a conviction that progressive taxes and social spending are to blame for slow growth, stagnant wages and exploding deficits"--are untouched and unshakeable. It is, in Greenspan's eyes, still ObamaCare, Medicare, Social Security, Reagan's expansion of the Earned Income Tax Credit, top marginal tax rates greater than 28%, the possibility of taxing private-equity carried interest, and Dodd-Frank that are America's big problems.

For what Larry sees as Greenspan's honest grappling with the problems of financial regulation, Steve sees as a cheap partisan shot at Obama, Bernanke, Dodd, and Frank--that Greenspan claims to be for regulation in the abstract but will always find a reason to be against any concrete really existing form of it, and sees no problem with complaining that Dodd-Frank does not contain provisions that it in fact does contain.

Now it is not the case that the publisher played a trick on Steve and Larry by sending them two different books. Steve read the same abjuration of efficient markets and rational expectations that Larry did--it's just that Steve dismisses it because it remains peripheral and does not cause Greenspan to mark any of his core beliefs to market. Larry has the same jaundiced view of Greenspan's complaints about the role of Ronald Reagan's (and Milton Friedman's!) EITC into a nation of moochers as Steve does. And Larry piles on along further dimensions with:

Greenspan regards raising the US saving rate as a central priority… output appears to be constrained by demand rather than by supply… long-term real interest rates are at near-record low levels… t is much less clear to me than Greenspan that raising savings rates is the right growth strategy…


I found myself disappointed that the events of the past few years had not led Greenspan to any revision of his anti-Keynesian views on macroeconomic policy…


Even in retrospect, he regrets the decision to save hundreds of thousands of jobs by having the government provide [the debtor-in-possession] financing in connection with the GM and Chrysler bankruptcies…

the financing that the private sector would normally have provided, but could not because of the financial crisis.

Yes. They did read the same book. They just read it… differently. Most of reading does take place between the ears of the reader, after all.

And since I do not have the book, I cannot referee as to whether Larry's hermeneutics of goodwill or Steve's hermeneutics of profound suspicion is more appropriate.

One thing that makes me lean toward Steve is that Larry's op-ed contains one paragraph that seemed to me strikingly knotted:

One of the areas where Greenspan has been most extensively criticised is in the failure of the Federal Reserve to do a better job of protecting consumers in the run-up to the financial crisis. He sidesteps the issue by asserting his focus on regulation, rather than fraud issues. But matters may not be so simple. An essential insight of the new sub-field of behavioural economics that Greenspan quotes approvingly is that people can be manipulated without being defrauded. If, as JK Galbraith observed, "Conscience is the knowledge that someone is watching", then questions of regulation and fraud are closely related.

Raise your hand if you think Larry has said clearly what needs to be said here. Anyone?

I would rewrite it as:

Greenspan sidesteps criticism that he should have done more to protect consumers in the run-up to the financial crisis by asserting that his focus is on systemic regulation rather than fraud. But without inappropriately lax regulation, fraud remains small-scale and cannot become a mass-production industry. And if fraud becomes a mass-production industry, dotting the regulatory i's and crossing the regulatory t's does nothing to control systemic risks.

And I would add:

In retrospect, his Randite belief that adults should protect themselves against 419, AAA-ratings, and other frauds rather than relying on the government made Alan Greenspan a bad choice to run the Federal Reserve in the 2000s.

But now I need to go back and reread and criticize my own highly complimentary review of Alan Greenspan's last book, his Age of Turbulence. The Monday DeLong Self-Smackdown is now in the order flow…

Chris Hill :

I did not know how to respond to Summers' review. I ended up figuring that the good will was insubstantial, fake. Basically Summers sounded like someone called on to say a few words in public about the crazy guy in the office next door. Most people aren't going to say "my former colleague is batshit crazy and angry at the world." Most people will smile and say something anodyne, with maybe a wink if the listener already knows the former colleague.

Min :

I think that attribution theory has something to say about the different takes on Greenspan's book. "Who you are speaks louder than what you say."

Summers is Greenspan's friend, and has an extensive background of discussions against which to judge the book. He sees changes in Greenspan's positions, and focuses on those. Also, since Greenspan is a friend, he soft-pedals his criticism. "But matters may not be so simple."

Pearlstein regards Greenspan as a major architect of a dysfunctional system, and sees whatever changes there may be in Greenspan's views, if Greenspan had it all to do over again as Fed chairman, he would do pretty much the same thing. IOW, lessons **not** learned.

Moi? I think that the philosophy of Ayn Rand has had a tremendous and continuing corrosive effect on our society, and Greenspan is her St. Paul. Our current crisis may have opened Greenspan's eyes, but it was no Damascus experience.

Joe Smith :

"I cannot referee as to whether Larry's hermeneutics of goodwill or Steve's hermeneutics of profound suspicion is more appropriate."

The appropriate response to Greenspan is a hermeneutics of seething rage and utter contempt.

Millions of lives have been sacrificed on an alter of false economic gods and no one has gone to prison. If we can't imprison Greenspan then the least we can do is exile him from any further participation in public discourse until he abjures his former beliefs and apologizes.

Nathanael :

Brad, noticed yet that Larry bends over backwards to say nice things about the rich and powerful like Greenspan, even when they don't seem to deserve them? Bending over backwards to say nice things is a good thing to do in general, but Larry doesn't do it for the less-rich and less-powerful. Think about it.

Dave :

I will embrace Pearlstein's view. Larry is too close to Greenspan, and Delong is to close to Larry. Even with that being the case, Delong still comes down on Pearlstein's side, and that says something.

The abomination of Greenspan's claim (that Larry shouldn't buy into) that fraud and manipulation are distinct and warrants Alan to rethink is devoid of all credibility. Greenspan is on record as saying that fraud should be legal. We understand why he believed this, and I'm certain it was because he believed the person with more information, capable of defrauding the less-informed person actually deserved to win.

We know enough about this man's character such that nobody should every read anything he write, nobody should listen to anything he says, and I question why his wife is allowed to continue reporting on NBC. If they didn't allow Chelsea Clinton to do commercials based upon her beliefs, they shouldn't allow somebody this close to a monster to be presented as an objective reporter.

Larry undoubtedly has some regrets that he has not publicly stated, and if not it is even more disturbing. So I think it is always safe to assume that an outside observer should NEVER take on Larry's perspective as the proper one for an outsider. Perhaps it is the proper perspective for an insider that still has to play politics, but I knew few people capable of putting up with the stench of the behavior of people like Greenspan.

eisenkrote :

You can take the boy out of the cult, but you can't take the cult out of the boy... Greenspan deserves all the opprobrium heaped on him, and then some, for helping sow the seeds of the crisis. Summers is also not blameless.

Partha Neogy :

Fritjof Capra emphasized the distinction between "the map and the territory" in "The Tao of Physics" (way back in 1975) to differentiate between superficial appearances and the underlying reality. Judging by the title of his book, one could hope that at last Greenspan is confessing to mistaking the Randian map for the territory of real economic processes. Pearlstein's review shows how wrong that hope would be.

BruceJ said in reply to Min...


Does no one else remember Greenspan's Congressional testimony that he was shocked, shocked that there was gambling going on in Ricks, I mean Wall Street, when he professed utter surprise that bankers would put their own personal well-being and profits ahead of the banks depositors, shareholders and customers?

I'm beginning to suspect that the economy did well 'despite' rather than 'because' of his stewardship of the Fed...

Paul Jonker-Hoffrén :

I think Michel Houellebecq's The Map and the Territory (2010) is a better read.

39Matt McIrvin said in reply to Partha Neogy...

I think "the map is not the territory" comes from Alfred Korzybski and General Semantics, back in the 1930s.

It's interesting to see Greenspan titling his book after a General Semantics aphorism; I don't know enough to have an opinion about its intrinsic merits, but the theory was a notable favorite of science-fiction writers of John W. Campbell's crowd, and influenced L. Ron Hubbard.

[Oct 20, 2013] The Worst Ex-Central Banker in the World

Economist's View

Paul Krugman:

The Worst Ex-Central Banker in the World: Steven Pearlstein reads Alan Greenspan's new book, and discovers that Greenspan believes that he bears no responsibility for all the bad things that happened on his watch - and that the solution to financial crises is, you guessed it, less government.
What Pearlstein doesn't mention, but I think is important, is Greenspan's amazing track record since leaving office - a record of being wrong about everything, and learning nothing therefrom. It is, in particular, more than three years since he warned that we were going to become Greece any day now, and declared the failure of inflation and soaring rates to have arrived already "regrettable."
The thing is, Greenspan isn't just being a bad economist here, he's being a bad person, refusing to accept responsibility for his errors in and out of office. And he's still out there, doing his best to make the world a worse place.
pgl said in reply to brad stark...

The damage from the dergulation he advocated was not apparent until it bite us in the rear end in 2008.

EMichael said in reply to The Blorch...

Fact: Greenspan made a ton of errors which greatly helped the destruction of much of the world's economy, and ruined the lives of millions of people, and now he refuses to admit he made any errors.


anne :

So far as I understand, the differences of Paul Krugman and Alan Greenspan begin in 2001 when Greenspan supported the tax cut proposals of President Bush which Krugman had repeatedly complained about through the Presidential campaign in 2000. Krugman thought a tax cut was irresponsible given a population that was again and becoming increasingly dependent on Social security and Medicare. Greenspan considered the federal surplus of 2000 as providing too much of a cushion.

As for general monetary policy, I do not recall Krugman complaining about the approach of Greenspan before 2001 or till February 2006 when Greenspan would leave the Fed. Brad DeLong repeatedly supported Greenspan on monetary policy before and after 2001.

EMichael said in reply to anne...

Dick Fuld made over $400 million in six years. All of those bank execs made that kind of money. Almost none of it was "gambled" away, though Mozilo gave up about $80 of his half billion.

Why do people not understand that, like every big exec in the US, these bank guys only cared about their income, not the health of their companies?

RepubAnon said in reply to anne...

The fundamental problem was that the interests of the bank executives were starkly different than the best long-term interests of their employers. It's those big, all-cash mega-bonuses: the incentive for bank executives is to ignore existing regulations to earn those 6+ figure cash bonuses for a few years, leave to form one's own hedge fund, shake one's head sadly when the bank runs huge losses from such reckless behavior, giggle when the taxpayers bail out the to-big-to-fail bank - and then blame the debacle on excessive regulation.

One quick fix would be to pay out these bonuses in a mix of stock and stock options vesting over a period of years rather than in cash. There'll still be abuses, but it would motivate banking executives to take more interest in the long-term health of their respective employers.

Detlef said in reply to anne...

Well, pgl already quoted the Pearlstein article.

But as a simple example....
In February 2004 Greenspan gave a speech suggesting that ARMs might save money for home buyers.

He made that speech at a time when the Fed rate was at a very low 1%.

Just four months later in June 2004 the Fed started to raise the interest rate.
Making such a speech might be justified at times when the interest rate is high. Making such a speech when the interest rate is very low is just ... stupid, insane?

Especially if you are the Federal Reserve Chairman.
Many people will just hear the recommendation, they won´t hear the qualifiers. It´s perfect to sustain a housing bubble, it´s less than perfect for many hopeful would-be home owners.

And his call for more "alternatives" to the "long term, fixed rate mortgage" encouraged use of NINJA loans, easy (low) repayments in the first two years of the loan, no doc loans...
Everything that blew up a few years later.

(Not to mention the rise of CDSs, CDOs, CDOs squared and CDOs cubed backed by mostly US mortgages around 2004. But once again the Federal Reserve Chairman Greenspan saw nothing, heard nothing, said nothing. :) )

I remember that speech because around that time I discovered blogs. :)
And I was puzzled, amazed and horrified.
You just don´t recommend ARMs when the Fed interest rate is at 1%!
Unless you´re either going senile or want to feed yet another bubble.
Add a fun link ... :),2486/

bakho said in reply to anne...

It is never a good idea to assign motive to someone else. However, the bottom line is Greenspan promoting bad policies that cause a lot of harm to a lot of people.

bakho said in reply to bakho...

Krugman's definition of a bad person, BTW, is someone who fails to own up to his own errors, blaming others instead.

[ Sep 20, 2012 ] Alan Greenspan's 'Gold and Economic Freedom'

Economist's View

Stephen Williamson discovers Alan Greespan's Randian roots:

Alan Greenspan and the Gold Standard, by Stephen Williamson: Speaking of weird monetary economics. Maybe everyone knows this, but a commenter on the last post led me to some details about Alan Greenspan's past that I did not know about.

First, Greenspan puts Paul Ryan to shame in the Ayn Rand department. Greenspan was not just a casual reader of Rand, but was in her inner circle while she was writing Atlas Shrugged. Greenspan was, or is, a committed Objectivist and wrote an essay, "Gold and Economic Freedom," for Rand's book Capitalism, the Unknown Ideal. That essay is described in the link as being influenced by the ideas of Murray Rothbard, whose ideas also have a bearing on what Ron Paul thinks. Like Rothbard, Greenspan thinks ... that the "golden" age of monetary arrangements existed prior to the existence of the Federal Reserve System. Most monetary historians think of the National Banking era (1863-1913) as a period when the financial system of the United States was fatally flawed, as it produced repeated banking panics. Not Greenspan apparently.

Here's an excerpt from "Gold and Economic Freedom":

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

You could put those two paragraphs in Ron Paul's "End the Fed," and no one would notice. The use of "insidious" is interesting. That's the same word that Paul Ryan used to describe QE3.

The amazing part of this story is that Greenspan served as Chair of the Fed for a long time, and didn't seem to screw up (though some people lay some of the blame for the financial crisis at his doorstep, I'm inclined not to). If I had read "Gold and Economic Freedom" before his appointment I would have been in a panic. Maybe this means we could appoint Ron Paul to replace Bernanke, and everything would be fine. No, never mind.

For your entertainment, here's a 2007 interview with Greenspan on the gold standard. Apparently his views have not changed much.


The claim,
Deficit spending is simply a scheme for the confiscation of wealth. a maybe right, but....As history teaches us, the alternative of Nazism or Revolutionary Communism results even a worse scheme for confiscation of wealth.

Paine said in reply to EugenR...

Here's a more valid sweeping generalization
For profit corporatism is a scheme for the confiscation of a chunk of a primary producers earned income

Profits are a variable, highly accident prone. Essentially contingent "tax" like extraction. Ripped from the hourly value added of the actual producer of that value by the exploiter/ proprietor of that production process

Paine said in reply to Paine...

Compared to our corporate elite Uncle Sam the tax man is a ham fisted oaf

Roger Gathman:

Greenspan's gold fetish is a little behind the curve. But for truly bizarre, I'd underline Williamson's sentences here:

"The amazing part of this story is that Greenspan served as Chair of the Fed for a long time, and didn't seem to screw up (though some people lay some of the blame for the financial crisis at his doorstep, I'm inclined not to)."

It is in such remarks that one discovers the true incorrigibility of economics as a discipline. There's no experiential side to economics at all, apparently.

moiph :

The Great G was, how should I put it, re-confiscating, as in "people should take advantage of ARM loans." Pre-crisis of course.First, load the barrel with fish.


Greenspan was a FAILURE at Fed regulatory policy. Economists want to focus on Monetary Policy but the importance of Regulatory Policy should not be underestimated.

The TechStockBubble was a regulatory failure as was the Housing Bubble. Both failures started on Greenspan's watch and Greenspan Failed to act. This is a direct consequence of his Randian ideology.

Greenspan also put on the Monetary brakes in 2000 even though the Fiscal brakes were collecting record tax revenues. Greenspan was anti-social spending and he did not want revenues to encourage expansion of social programs.

Greenspan also encouraged Bush tax cuts for the wealthy to make sure the revenue was not available for fiscal policy expansion.

To his credit, Greenspan allowed unemployment to drop to 4 percent without hitting the brakes and proving that wage inflation was no a concern in the current economic environment.

Aaron :

Why do so many articles about Greenspan evoke memories of "Chance, the gardener".

Wasn't Greenspan's most significant innovation as Chair of the Fed to whisper plans for interest rate adjustments so that he could assess market reactions beforehand and adjust the numbers? That, combined with cryptic statements that were offered as evidence of genius - that he was so smart, nobody could understand him?

When we hear economists discuss the Clinton surpluses these days, they're sharing the hindsight view that they were fueled by economic circumstances that were not sustainable, with plenty of mention of the Internet bubble. Greenspan was dismissive of bubbles and his public statements suggest that he thought that budget surpluses would continue indefinitely. He thus encouraged passing the "Bush tax cuts" ostensibly in order to avoid paying down the nation's debt "too quickly". He then reverted to form, dismissing the notion that we were building up to a housing bubble.

If you want to add another layer of cynicism, "allowing" the unemployment rate to drop to 4% can be taken as a victory not of economic policy but of objectivism in action - Rand's philosophy that free market policies would naturally suppress involuntary unemployment. As long as unemployment remained low, it stood as living proof of Rand's theories, so why would one expect a committed objectivist to undermine that living experiment? (And the topmost layer of cynicism would be that Greenspan seemed to do the most economic tampering of his tenure during the lead-up to to 2000 election, with some suggesting that he was hoping to influence its outcome.)

ezra abrams :

what does this say about the mainstream media, that this is new ?
Or is it that this is old news, and the blogosphere either doesn't know about things like The New Yorker, or is to lazy to look up dead tree info in the library ?

Darryl FKA Ron said in reply to ezra abrams...

Pre-election neurosis has taken over all the media now. After November we can return to normal dementia praecox.

Mark A. Sadowski said in reply to ezra abrams...

I was stunned that a monetary economist with a website titled "New Monetarism" (which is a crock if you ask me) didn't know such a basic fact about perhaps the most famous living central banker. This confirms my conception of him as more a mathematician than economist.

And if you read Williamson's comment thread from yesterday you'll notice he asks the commenter who told him this for evidence of his claim. I was absolutely astonished that a PhD didn't know how to Google, as in:


Mcwop :

Dollars could be sold for gold and silver, but taxes must be paid in dollars. So those holders would have to sell gold and silver to pay their taxes or risk jail. So there would be demand for the currency.

Also there is probably more evidence that gold does well when we have negative real interest rates, and not inflation.

Mike :

This is old news, but what I don't understand is the implication that our banking is not seriously flawed after 1913.

It's like some people see the financial systems prior to 1913 as bad and after 1913 as good. This view is especially naive, not to mention mind boggling since our financial sector just went to pot. Additionally during this time period, we have experienced a Great Depression, bank runs between 1929 and 1933, and the largest peacetime inflation of the 1970's.

While pre-banking 1913 was not a golden age of monetary arrangements (something that Greenspan did not claim, so I am curious why eh author claims otherwise), our financial sector after 1913 is nothing to brag about. It certainly has it faults and we certainly haven't entered into a golden age of monetary arrangements.

Mark A. Sadowski said in reply to Mike...

"While pre-banking 1913 was not a golden age of monetary arrangements (something that Greenspan did not claim, so I am curious why the author claims otherwise),..."

I'm not so sure about that. In his 1966 essay on the Gold Standard Greenspan states:

"Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed."

squidward :

"Excessive credit creation is simply a scheme for the confiscation of wealth."

There, fixed for ya maestro.

Rather sardonic that the handcuffs of a gold standard would never have allowed the one trick pony Greenspan to do the only thing he knew how to do; ease. Starting with the crash of 1987 then changing reserve requirements on banks all he ever did was ease credit. Any crisis was answered with more easing, then low rates combined with "financial innovation" would catalyze bubbles.

With the constraints of the gold standard the maestro would have been put in the third chair.

Dan Nile :

The National Banking era was the period of the greatest economic and income growth that the United States has ever seen. Monetary historians are central banking apologists.

Debt didn't grow exponentially across generations in those days.

Show us the money...:

Here's a whole bunch of reasonable economists stating exactly what they think of the gold standard...and if you disagree then you're pretty much swimming against the tide with Ron Paul (the good guy)...

Ps: Give it up Ron Paul, we needed you rather than that muppet Romney.

Lafayette :


{Greenspan: This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process.}

And I'll bet he still spews this malarkey any time he gets a chance. The guy is beyond repair.

Moreover, he is taking not of an economic philosophy in proposing such malarkey, but a political one. Which, of course, is why he was made head of the FRB in 1987. And who was PotUS that year?

Yet another fan of Ayn Rand from his days prancing around Hollywood movie sets - Reckless Ronnie Reagan ...

Ayn Rand is bunkum. Her works describe the elevation of man and his pursuits to god-like status ... under the presumption that markets perform in the same manner since, after all, they are run by men.

Ayn Rand's works are the ramblings of a woman who barely escaped the grips of Communism and carried forever a grudge against those who would promote its theories. That Communism was deeply flawed is one thing, but that the Welfare State, by some weird extension of logic, is as well is quite another.

Anyway, in the great amalgam of economic philosophies in the US, the mixing and mingling of those on the Left is common course. And the Right treats them all equally despicably.

The US still has no concrete idea whatsoever of what constitutes a Social Democracy. Not as social theory, not as policy and most certainly not in terms of human decency or morality. Otherwise its people would not tolerate the Great Income Unfairness of their present economic system.

Until it does, the US will remain profoundly anchored to the sentiment that only individual effort and endurance merits being rewarded - and the sky's the limit. Sharing equitably the benefits of a market economy - to which one contributes their labor towards producing - is for whiners and wimps.

Like the Romney Guy's 47% of the American population.


Those smiled upon by the gods of chance deserve the spoils of their manly endeavours - whilst the rest of us are condemned to an existence as roadkill on the Highway of Life.

Take it or leave it, they would have us believe.

[Jan 31, 2012] Michael Hudson: The Man Who Fired Greenspan

"Greenspan being a part of this report because he was known as a hack that always gave …his clients what they wanted instead of something actual."
January 31, 2012 | naked capitalism

This is the transcript of an interview with Michael Hudson in an Australian film, discussing a 1966 incident:

MH: They increased it largely by having Alan Greenspan create the Greenspan Commission to look at social security and pushing the myth that social security had to be funded out of pre savings, so American labour was essentially taxed 11% between itself and the employers to pay social security and this vast increase in social security taxes was used to lend to the Government(US) to provide it with enough money to slash taxes on the rich and that was Greenspan's ploy.

He was rewarded by being made head of the Federal Reserve for his actual hatred of labour and his desire that you had to reduce living standards in order to increase the profits of capital.

And so Greenspan was sort of the hack that was hired.

When I was on Wall Street, Greenspan was hired as part of a study I was doing on the balance of payments of the Oil Industry. And one day my boss, John Deaver came into my office and said he really worried about Greenspan being a part of this report because he was known as a hack that always gave …his clients what they wanted instead of something actual.

So he (JD) gave me Greenspan's figures on depreciation of oil producing refinery assets in Europe and asked me to find out where the faking is? He said he couldn't believe that Greenspan by himself wouldn't of just faked the figures and it took me about a week to figure out where the faking of the figures came out (from) and that was Greenspan had simply picked up depreciation rates relative to output for the United States and projected them onto Europe.

So I went over and talked to his assistant Lucille Woo and she said "it's all implicit, all implicit" and I confronted her with it and she said "Yes that's what we did"!

And so, Greenspan was indeed 'talked off the study' and we met… John Deaver, David Rockefeller and myself and I was told…Greenspan was such a little bastard that if they fired him, he'd hold a grudge against Chase Manhattan for years and they told me to be the guy to give him the news that we couldn't use his (laughs) statistics on it and I was a 25 year old economist at the time and he hardly new me at all, so I was the guy that…subsequently became known as 'the man who fired Alan Greenspan'.


"Greenspan being a part of this report because he was known as a hack that always gave …his clients what they wanted instead of something actual."

So at the Fed then, who was leading Greenspan around, through both Rep and Dem Admins with the same outcomes?


I personally don't understand why the likes of such a powerful man like Rockefeller would be concerned about the reactions of a "little bastard" like Greenspan. It makes no sense. Either Greenspan really is just a "little bastard," in which case how he feels about getting fired is of small consequence, given his incompetence and "littleness"; or else it is of consequence, in which case one has to ask why.


my read is that greenspan was one of the "go to" guys for a point of view to be validated by alleged "economic analysis" and with enough numbers thrown in to make it believeable –

for the report to be discredited so easily – in front of Rockefeller – chairman of chase – was pretty embarassing – for all concerned – but his brand even in the mid 60′s was worth something. so the concern of how he would act in the future – potentially pissing on someone elses parade in the future – Rockefeller was probably knowledgeable where greenspan had already screwed someone else – ie: the "little bastard" – today we would call him a little prick!

[Nov 03, 2011] three-card-monte-spring-2004

Three-Card Monte

Following up on Kash's earlier post about Greenspan, Krugman's op/ed also highlights a fairly bold bait and switch maneuver by Greenspan:

The payroll tax is regressive: it falls much more heavily on middle- and lower-income families than it does on the rich. In fact, according to Congressional Budget Office estimates, families near the middle of the income distribution pay almost twice as much in payroll taxes as in income taxes. Yet people were willing to accept a regressive tax increase to sustain Social Security.
Now the joke's on them. Mr. Greenspan pushed through an increase in taxes on working Americans, generating a Social Security surplus. Then he used that surplus to argue for tax cuts that deliver very little relief to most people, but are worth a lot to those making more than $300,000 a year. And now that those tax cuts have contributed to a soaring deficit, he wants to cut Social Security benefits.
As you can see from this post last week, the 2004 deficit is only brought down to a mere $500,000,000,000 by starting with the non-trustfund deficit of $631,000,000,000 and subtracting from that the $154,000,000,000 surplus created by the payroll tax (money allegedly going into the trust fund/lockbox).
To summarize, here's Greenspan's 20+ year plan to roll back Social Security:

Step 1. Get appointed in early 1980s to committee to protect Social Security.

Step 2. Successfully propose substantial increases in regressive payroll taxes in order to save Social Security. Workers will pay higher payroll taxes but their retirement benefits will be assured.

Step 3. Wait 20 years; to pass the time, become Chairman of the Federal Reserve.

Step 4. Actively support large and regressive cuts in income taxes. Never mention payroll taxes.

Step 5. Repeat step 4.

Step 6. Observe that in 2004, steps 4 and 5 lead to a $631b shortfall; Step 2, however, created a $154b surplus.

Step 7. Reverse Steps 4 and 5.

Step 8. Just kidding about step 7. Seriously, the answer is clear: cut Social Security benefits.


UPDATE: CalPundit had a post on Sunday, THREE CARD MONTE WITH ALAN GREENSPAN, which made the same observation and concluded, "A normal person would at least be embarrassed by all this. But Alan Greenspan has never been a mere mortal, has he?"

[Apr 10, 2011] Brooksley Born Excoriates Alan Greenspan "You Failed"

FDL News Desk

At today's Financial Crisis Inquiry Commission hearing, Brooksley Born, the former head of the Commodity Futures Trading Commission, declared Alan Greenspan's tenure at the Federal Reserve an unmitigated failure – to his face. Greenspan accords a certain degree of respect on Capitol Hill, despite Born's accurate take on his many failures, and so this outburst was highly unusual – and gratifying.

Born, who pushed to strictly regulate derivatives under the Clinton Administration, but lost the battle to, among other people, Alan Greenspan, told the former Federal Reserve chair that his agency "failed to prevent housing bubble, failed to prevent the predatory lending scandal, failed to prevent the activities that would bring the financial system to the verge of collapse."

"You failed to prevent many of our banks from consolidating and growing to a size that are now too big or too interconnected to fail," Born added. She added that Greenspan's views on deregulation, which he took as an article of faith, contributed to the Federal Reserve's failure in delivering on its mandate.

Looking as angry as he could at his advanced age, Greenspan replied, "The flaw in the system I acknowledged was an ability to fully understand the state of potential risks that were fully untested… That means we were under-capitalizing the banking system for 40 or 50 years."

He then pivoted to a defense of his work, using an innocent bystander argument. "I don't have the discretion to use my own ideology to affect my judgments on what Congress did. If somebody asked my view on a particular subject, I would give it to them. But I ran my office as required by law… I fundamenally disagree with your perspective."

This is frankly ridiculous. Alan Greenspan was known during his days at the Fed as "The Oracle." Every word of his moved the markets and moved politicians. His viewpoints absolutely contributed to the deregulation of the financial sector. He also had lots of broad discretion while at the Fed to deal with the housing bubble. Instead he hyped it.

If anyone was watching this but me and the WSJ, they would have seen a cornered rat. Born nailed Greenspan – although, given the relative lack of interest in the FCIC, the benefit to that will be merely psychic in nature.

[Jan 15, 2011] The FOMC Debates the Housing Bubble in 2005

Jan 15, 2011 | CalculatedRisk

The Federal Reserve just released the transcripts of the FOMC meetings in 2005. This will take some reading, but the June meeting was focused on housing.

From then Atlanta Fed President Jack Guynn:

[T]there is the housing situation, which we talked about for a long time yesterday afternoon. As I've been reporting for several meetings, some of our markets, especially those in coastal areas of South Florida and the Florida panhandle, are experiencing a level of building activity and price increases that are clearly, in my view, unsustainable. Nearly every major Florida city now has experienced increases in the double-digit range, and some, like Miami, Palm Beach, Sarasota, and West Palm, have been reporting increases in housing prices on a year-over-year basis of between 25 and 30 percent. While our discussion yesterday did not seem to indicate a consensus on a national housing bubble, based on past experience I'm reasonably comfortable characterizing the housing feeding frenzy in some of our markets as being a bubble or a near bubble.

For example, the number of major projects planned or under construction in Miami now totals 114, most of which are high-rise developments. That includes 61,000 condo units-eight times the number that were built in the last decade-and a total of 100,000 new parking spaces. I know we don't have any process for introducing exhibits into the record, but I'd like to pass Dave Stockton this pictorial of the new projects in Miami, so that he can continue to worry a little bit along with me. [Laughter]

My supervision and regulation staff thinks this is an accident waiting to happen in our area. And while the local market excesses probably do not represent systemic national risk, the shakeouts could have serious regional consequences. My bank supervision staff points out that housing-related credit risks to our bank lenders are not so much from defaults on permanent mortgage financing that we talked about yesterday, but rather from lending for land acquisition, development, and construction. The ugly picture we have seen before-and that they think we may very likely see again before long-goes something like this: the drying up of sales of new units; the painful decision of developers to go ahead and complete the construction of additional units to make them saleable, further depressing the market; and speculators who had hoped to see big capital gains walking away or defaulting on their contracts, giving their properties back to the lender. Perhaps it's because of where I sit, but I am less comforted than some of my colleagues about the housing situation. ...

CHAIRMAN GREENSPAN. Let's take a break for coffee.
Here are the presentation materials for the June meeting with plenty of graphs on housing.

Selected Comments


Let's take a break for coffee.



From reading many of these transcripts, I think Greenspan was either really addicted to coffee - or he needed frequent bathroom breaks. But he always seemed to call for a coffee break at the end of a scary presentation. .


So Greenscam hightails it out office over to Deutsche Bank where he advised how to profit from the US housing collapse, right before it started in earnest.

He has absolute contempt for everyone, well, except for himself of course. .


Anyone who disagreed with Greenspan for too long, eventually was turfed out.

The impression I've had from reading FOMC minutes, was that the whole thing was basically just orchestrated by Greenspan, and no disagreement was brooked. .


Jonathan wrote:

the whole thing was basically just orchestrated by Greenspan, and no disagreement was brooked.

Even worse, you can't really get $$$ job with an ECON PhD, without a stint at the Fed. And if you ever wrote anything critical, I doubt you were likely to get a posting. .


Oh Jonathan, remember CNBC and their groupie like behavior before he would speak. One of the low points was when they would focus the camera on his briefcase as he entered a building. It was totally disgusting, like a bunch of 12-year-old hormonal teenaged girls giddy over the mere prospect of an appearance and a word uttering from his mouth. ICK. SICK...IDOL WORSHIP .


anyone know how much Sir Alan is worth?


Fluffy the Obese Persian Cat wrote:

Was that as characteristic (and damning) as it was made to look?

This point has probably already been made, but let me say, as a former Corporate Secretary for a Fortune 1000 Company and its General Counsel, the real action takes place OFF THE RECORD. The coffee break comment was as intentional and transparent as that gets. The smooth guys say, "Time for a bio break." That's a cue for the guy talking to go in the bathroom with the chap asking for a break and they have a very off the record and brief conversation. So, uh, yeah ... I imagine it was no accident. .

black dog

CHAIRMAN GREENSPAN. Governor Gramlich.

MR. GRAMLICH. Sticker shock question: In the history of the world, has a country ever run a $1 trillion current account deficit?

MS. JOHNSON. I don't think so. [Laughter]

CHAIRMAN GREENSPAN. Is that your question?

MR. GRAMLICH. Yes. I didn't say it was heavy! [Laughter]

CHAIRMAN GREENSPAN. That's called truly rhetorical. President Hoenig. .

Rob Dawg:

Okay, the firstWASS got not response so:

Lacker: Third, I find myself worrying about the possibility of an inflation scare in the bond market, despite the recent decline in TIPS spreads. It's not clear how likely this is, but if it happened, it would be very costly. A spike in long-term yields could be particularly harmful today for elevated housing prices. It would raise long-term mortgage rates directly, obviously. Moreover, it would force us to raise short-term real rates. And in such circumstances I think it would be even harder for us to facilitate this handoff of investment from the housing sector to the business sector without an intervening recession.


[Aug 23, 2010] The Man Nobody Wanted to Hear Global Banking Economist Warned of Coming Crisis


Part 3: The Killjoy Vs. the Party Animal

Greenspan was long a member of the BIS board of directors and was effectively White's superior. As a fervent champion of the free market, he advocated the model of minimal intervention. In his view, the role of central banks was to control inflation and price stability, as well as to clean up after burst bubbles. Because no one can know when bubbles are about to burst, he argued, it would be impossible to intervene at the right moment.

In his eyes, the instrument of sharply raising interest rates to counteract market excesses routinely failed. Leaning "into the wind," he argued, was pointless. He could even cite historical proof for his thesis. Between the beginning of 1988 and the spring of 1989, the Fed raised the prime rate by three percentage points, the goal being to curtail lending by raising the cost of borrowing. The textbook conclusion was that this would be toxic to the markets, but precisely the opposite occurred: Prices continued to rise.

This supposed paradox repeated itself five years later. Once again, the Fed raised interest rates and, again, the market shot up.

These experiences only strengthened Greenspan's conviction that raising interest rates was an ineffective tool to counteract bubbles. However he never tried raising interest rates to a significantly greater degree than had previously been done, to see what would happen.

The question of who was right, Greenspan or White, didn't exactly lead to a power struggle in Basel. The forces were too unevenly distributed for that. On the one side was the admonishing chief economist, with his seemingly antiquated model that advocated the establishment of reserves, and on the other side was the glamorous central banker, under whose aegis the economy was booming -- the killjoy vs. the party animal.

The central bankers certainly discussed the competing models. But most of them were behind Greenspan, because his system was what they had studied at their elite universities. They refused to accept White's objections that the economy is not a science. There was no way of verifying his model, they said.

Besides, who was about to question success? Greenspan was their superstar, the inviolable master, a living legend. "Greenspan always demanded respect," White recalls, referring to the Maestro's appearances. Hardly anyone dared to contradict the oracular grand master.

And why should they have contradicted Greenspan? "When you are inside the bubble, everybody feels fine. Nobody wants to believe that it can burst," says White. "Nobody is asking the right questions."

He even defends his erstwhile rival. "Greenspan is not the only one to blame. We all played the same game. Japan as well as Europe followed the low interest policy, almost everybody did."

Meanwhile, White noted with concern what the central bankers were triggering as a result. Their policy of cheap money led to the Asian financial crisis in 1997. When the debt that banks had accumulated went into default, the International Monetary Fund (IMF) and other donors had to inject more than $100 billion (€71 billion) to rescue the world economy.

In describing the failure of the markets as far back as 1998, White wrote that it is naïve to assume that markets behave in a disciplined way.

But Greenspan, the champion of free markets, remained impassive.


Graphic: The curse of cheap money

A few weeks later, the market demonstrated its destructive power once again, when Russia plunged into a financial crisis, bringing down the New York hedge fund Long Term Capital Management (LTCM) along with it. The New York Fed hurriedly convened a meeting of the heads of international banks, initiating a bailout that remains unprecedented to this day. The global economy was saved from a systemic crisis -- at a cost of $3.6 billion (€2.6 billion).

And what did Greenspan do? He lowered interest rates. Then the next bubble, the so-called New Economy, began to grow in Silicon Valley. It burst in the spring of 2000. What did Greenspan do? He lowered interest rates. This time the reduction was massive, with the benchmark rate dropping from 6 percent to 1 percent within three years. This, according to White, was the cardinal error. "After the 2001 crash, interest rates were lowered very aggressively and left too low for too long," he says.

While the economy was recovering from the demise of the dotcom sector and from the terrorist attacks of Sept. 11, 2001, cheap money was already on its way to triggering the next excess. This time it took place in the housing market, and this time it would be far more devastating.

White was losing his patience. Was there no other option than to regularly allow the economy to collapse? Didn't the policy of operating without a safety net border on stupidity? And wasn't it written, in both the Bible and the Koran, that it was important to provide for seven years of famine during seven good years?

This time, White didn't just want to discuss his views behind closed doors. This time, he decided to seek a broader audience.

Part 4: One Villain Replaced by Another

His destination was Jackson Hole in Wyoming, a kind of Mecca for financial experts. It was August 2003.

Once a year, the Federal Reserve Bank of Kansas City invites leading economists and central bankers to a symposium in Jackson Hole. Against the magnificent backdrop of the Grand Teton National Park, the world's financial elite spends its time unwinding on hiking trails and in canoes, before retreating into conference rooms to discuss the state of the global economy. Only those who can hold their own in front of this audience are considered important in the industry.

"This is an opportunity we can't afford to miss," BIS economist Claudio Borio told his boss, White, as he wrote himself a few last-minute notes in his room at the Jackson Lake Lodge in preparation for his speech to the symposium.

Greenspan was in the audience when Borio and White presented their theories -- theories that had absolutely nothing in common with the powerful Fed chairman's worldview, or that of most of his colleagues.

White and Borio described the dramatic changes that had taken place since deregulation of the financial markets in the 1980s. Price stability was no longer the problem, they argued, but rather the development of imbalances in the financial markets, which were increasingly causing earthquake-like tremors. "It is as if one villain had gradually left the stage only to be replaced by another," White and Borio wrote in the paper they presented at Jackson Hole. As it turned out, it was a villain with the ability to unleash devastatingly destructive forces.

It was created by what the two BIS economists called the "inherently procyclical" nature of the financial system. What they meant is that perceptions of value and risk develop in parallel. People suffer from a blindness to future dangers that is intrinsic to the system. The better the economy is doing, the higher the ratings issued by the rating agencies, the laxer the guidelines for approving credit, the easier it becomes to borrow money and the greater the willingness to assume risk.

A bubble develops. When it bursts, the results can be devastating. "In extreme cases, broader financial crises can arise and exacerbate the downturn further," White wrote in his analysis. The consequences, according to White, are high costs to the real economy: unemployment, a credit crunch and bankruptcies.

All it takes to predict such imbalances, White argued, is to monitor "excessive credit expansion and asset price increases," and to take corrective action early on, even without a pending threat of inflation.

This task, the authors concluded, must be performed by monetary policy, among other things. The central banks, according to White and Borio, could limit credit expansion and thus avoid adverse effects on the global economy.

The Jackson Hole paper was an assault on everything Greenspan had preached and, as everyone knew, he was not fond of being contradicted. Other members of the audience glanced surreptitiously at the Maestro to gauge his reaction. Greenspan remained impassive, his face expressionless behind his large spectacles, as he listened to White. Later, during a more relaxed get-together, he refused to even look at White.

White suspected he had failed to convince his audience.

"You can lead a horse to water, but you can't make it drink," he says.

[Jul 19, 2010] Tim Geithner's Ninth Political Life

"Can GEICO really save you 15% or more on car insurance? Is Tim Geithner a lying dirt bag?" ... "This also explains Alan Greenspan perfectly."
July 16, 2010 | The Baseline Scenario

ask Chomsky

QUESTION: You wrote that Henry Kissinger's memoirs "give the impression of a middle-level manager who has learned to conceal vacuity with pretentious verbiage." You doubt that he has any subtle "conceptual framework" or global design. Why do such individuals gain such extraordinary reputations, given what you say about his actual abilities? What does this say about how our society operates?

CHOMSKY: Our society is not really based on public participation in decision-making in any significant sense. Rather, it is a system of elite decision and periodic public ratification. Certainly people would like to think there's somebody up there who knows what he's doing. Since we don't participate, we don't control and we don't even think about the questions of crucial importance, we hope somebody is paying attention who has some competence. Let's hope the ship has a captain, in other words, since we're not taking in deciding what's going on. I think that's a factor. But also, it is an important feature of the ideological system to impose on people the feeling that they are incompetent to deal with these complex and important issues; they'd better leave it to the captain. One device is to develop a star system, an array of figures who are often media creations or creations of the academic propaganda establishment, whose deep insights we are supposed to admire and to whom we must happily and confidently assign the right to control our lives and control international affairs. In fact, power is very highly concentrated, decision-making is highly concentrated in small interpenetrating elites, ultimately based on ownership of the private economy in large measure, but also in related ideological and political and managerial elites. Since that's the way the society effectively functions, it has to have political theology that explains that that's the way it ought to function, which means that you have to establish the pretense that the participants of that elite know what they are doing, in our interest, and have the kind of understanding and access to information that is denied the rest of us, so that we poor slobs ought to just watch, not interfere. Maybe we can choose one or another of them every few years, but it's their job to manage things, not ours. It's in this context that we can understand the Kissinger phenomenon. His ignorance and foolishness really are a phenomenon. I've written about this in some detail.

But he did have a marvelous talent, namely, of playing the role of the philosopher who understands profound things in ways that are beyond the capacity of the ordinary person. He played that role quite elegantly. That's one reason why I think he was so attractive to the people who actually have power. That's just the kind of person they need.

jake chase

This also explains Alan Greenspan perfectly.

[Jun 20, 2010] Greenspan Says "Deficit Reduction A Priority" - Hence, You Know its Not The Big Picture By Barry Ritholtz

Is this guy playing a parody on Hjalmar Schacht or just a cornered rat ? As Barry Ritholtz noted "A brief look at the Greenspan legacy, along with his track record of forecasts, leads to the obvious conclusion: Greenspan is an economist to blithely ignore, as his commentary contains almost nothing of value other than its status as a contrary indicator."
June 19, 2010

Former Fed Chair Alan Greenspan discussed the Federal deficit in a WSJ OpEd yesterday. In it, he argued that the budding "urgency to rein in budget deficits" is occurring "none too soon."

Like most of the former Fed Chair's analyses, forecasts, and economic beliefs, this one is pure, unmitigated nonsense. A brief look at the Greenspan legacy, along with his track record of forecasts, leads to the obvious conclusion: Greenspan is an economist to blithely ignore, as his commentary contains almost nothing of value other than its status as a contrary indicator.

Before we get into the details of his deficit commentary, I must highlight this sentence: "The financial crisis, triggered by the unexpected default of Lehman Brothers in September 2008, created a collapse in global demand that engendered a high degree of deflationary slack in our economy."

No, Alan, the financial crisis was not triggered by Lehman's collapse. You are getting the causation exactly backwards: The crisis is what triggered LEH's collapse. Further, the fall of Lehman was hardly "unexpected." Whether you want to look at stock price before the collapse, spreads on its debt, David Einhorn's forensic accounting (he was short LEH) or our own quantitative analysis (we were short LEH), there were plenty of warnings about Lehman's collapse. It was only unexpected by those whose ideological beliefs blinded them to reality. (Remind you of anyone?)

Moving onto his discussion about the deficit, the hypocrisy leaps out in nearly every paragraph. Any Greenspan related discussion of current deficits must begin with his specific role in helping to create them.

Not, understand one thing: I pay my share of taxes, and they are not insubstantial. Thus, I am in favor of properly funded tax cuts – meaning, reductions in taxes that are paid for with a matching reduction in spending. But Not Greenie . . . When the Bush White House proposed a trillion dollars in unfunded tax cuts in 2001, and again in 2003, Greenspan publicly endorsed them. (Why a sitting FOMC chair got involved in the politics of tax legislation, as his support of privatizing Social Security, is best saved for another day).

Regardless, Greenspan's lent the considerable prestige of the FOMC Chair to the debate, and arguably helped tip the scales in favors of these huge, unfunded, deficit creating tax cuts. His present argument now rails against the net results of his prior arguments. Perhaps some sense of guilt is driving him.

Regardless, history has proven him wrong about the costs of the tax cuts in 2001/03, History - namely, the post depression 1937/38 recession - shows how misplaced his current focus on deficit reduction is today.

More Greenspan foolishness:

"Despite the surge in federal debt to the public during the past 18 months-to $8.6 trillion from $5.5 trillion-inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences."

This is classic Greenspan, demonstrating a lack of knowledge, inconsistency, and disconnected belief system:

1) To say that "remarkably subdued" inflation and long-term interest rates is regrettable reflects 1) a lack of understanding of the current deflationary environment;

2) If inflation and higher interest rates are the "typical symptoms of fiscal excess," then perhaps the message of the markets is that deficits during the immediate aftermath of a huge recession are not a problem? For a guy who supposedly placed incredible trust in the markets, he sure does cherry pick what he wants, and disregards the rest.

3) The surge was caused by the enormous shortfall in tax revenue due to the recession, and the massive costs of bailing out the banking sector. Treating these costs as if they are ordinary budget items is ridiculous.

I can go on and on, but its the weekend. Before I give it a rest, I must point out that Greenspan's forecasting inability. After Greenspan announced his retirement in 2005, I discussed some of his greatest hits in Myths of the Greenspan Era:

  • July 20, 2004: Greenspan testified before Congress saying that rising energy prices "should prove short-lived." Crude prices tripled form there.
  • Summer 2004: Greenspan's advice to would-be homeowners: Consider adjustable-rate mortgages. Surprising advice, considering that fixed-rate loans were near half-century lows. He then started raising rates, contributing to the huge foreclosure surge.
  • May 2003: Greenspan made an amazingly bad call on natural gas when he warned of potential shortages; natural gas prices tumbled shortly thereafter.
  • Summer 2003: Fed concern about deflation led Greenspan to suggest the Fed stood ready to make open-market purchases of Treasuries to ensure rates stayed low. He even convinced the Treasury market into believing that rates would stay low for a long, long time. Bond buyers discovered (to the detriment of their holdings) that this statement was false.
  • October 1999: The Fed erroneously anticipates a Y2K-induced run on the banks, and it infuses liquidity. That surge in money supply effectively doubled the Nasdaq Composite from October 1999 to March 2000; I presume you recall how that ended.
  • 1996: "How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions?" Markets proceeded to rally strongly for another four years.
  • Greenspan is arguably the most incompetent economist of his generation, yet still retains some credibility amongst the uninformed. OpEds such as this one serve as reminders of that . . .

    1. drewburn Says:
      June 19th, 2010 at 9:29 am

      I agree. Hard to believe the guy could be so blind. He still can't admit his mistakes. I'm with you on every point, Barry.

    2. rktbrkr Says:
      June 19th, 2010 at 9:36 am

      Greenspan makes as much sense as Kudlow.

    3. bondjel Says:
      June 19th, 2010 at 9:36 am

      I think this is a brilliant commentary on this bamboozling ideologue. I vividly recall how blithely unconcerned he was about deficits when he came out and supported the George W tax cuts. He had the unmitigated audacity to say to Congress, when he was told that his statement would tip the scales in favor of the tax cut, that he couldn't help it if his words were misinterpreted!!! (I think this is in Ron Suskind's book about Treas Sec Paul O'Neill, "The Price of Loyalty".) This from a man who had spent his whole career developing Greenspeak so he could hide his meanings in public statements! This guy is such a huge hypocrite that I don't see how he can fail to go down in history as one of the worst Fed Chairs ever. If you would like to see a remarkable contrast to Easy Al read "Chairman of the Fed: William McChesney Martin Jr., and the Creation of the Modern American Financial System" by Robert P. Bremner.

    4. Moss Says:
      June 19th, 2010 at 9:51 am

      Seems to me he is appeasing the very same ideologues that flip flop on deficits for political reasons. The king dollar crowd is now wondering if a strong dollar (relative to other fiats) is hurting. Last year they were berating a weak dollar and praising the merits of a strong dollar. It is all about winning some seats in the upcoming election. Go team go!

    5. DeDude Says:
      June 19th, 2010 at 10:19 am

      Right wing neo-con total idiot is about the nicest thing you can say about that old fool. The truth is probably worse. They want to slam the economy into a 1937-38 style dip in order to be able to blame Obama and the democrats, and gain back control.

    6. KidDynamite Says:
      June 19th, 2010 at 10:22 am

      this is a beautiful paragraph, BR:

      "No, Alan, the financial crisis was not triggered by Lehman's collapse. You are getting the causation exactly backwards: The crisis is what triggered LEH's collapse. Further, the fall of Lehman was hardly "unexpected." Whether you want to look at stock price before the collapse, spreads on its debt, David Einhorn's forensic accounting (he was short LEH) or our own quantitative analysis (we were short LEH), there were plenty of warnings about Lehman's collapse. It was only unexpected by those whose ideological beliefs blinded them to reality. (Remind you of anyone?)"

    7. ACS Says:
      June 19th, 2010 at 10:23 am

      Do you think Alan Greenspan & Ben Stein are in some sort of idiocy contest?

    8. wunsacon Says:
      June 19th, 2010 at 10:27 am

      >> "The financial crisis, triggered by the unexpected default of Lehman Brothers…"

      Un-believable. Greenspan can't even articulate *that* causality correctly? C'mon… Yes, ACS is right: Greenspan must be competing for this year's Ben Steinery Award.

    9. Chief Tomahawk Says:
      June 19th, 2010 at 10:46 am

      "…yet still retains some credibility amongst the uninformed." And to think of all the Maria Bartiromo 'exclusives' CNBC has trumpted since his departure from the Fed…

    10. jjay Says:
      June 19th, 2010 at 10:53 am

      I doubt Greenspan is a fool or an idiot. He is a self serving, social climbing, power mad, evil man.
      He knew full well he was wrecking the economy as much as Clinton and Bush I- Bush II did, and as much as Angelo Mozillo et al, and the GS/JPM/wrecking crew did.

      As long as they control wealth and power, they do not care who suffers as a result, or if they bring their own country to ruin.

      Take Hitler, Goering, and Goebbels out of their uniforms, and dress them in Brooks Brothers suits.
      Then imagine they decide to use stealth, the financial markets, and the political process instead of the Wehrmacht and Luftwaffe to destroy the world.

      No War Crimes trials and you get to enjoy your loot in an (for you) intact society.
      That sums it up for me.

    In the hot tub time machine with Alan Greenspan - How the World Works - By Andrew Leonard

    The "Maestro" tells Americans we can't afford our future. Ten years ago, he sang a different tune

    The federal government of the United States better get its finances in order, warns Alan Greenspan in the Wall Street Journal today, or we're going to be in big, big trouble!

    If I were seeing a therapist, I'm sure she would warn me that my recent habit of reading opinion pieces in the Journal and then collapsing into a fit of apoplectic befuddlement is not good for either my long-term health or sanity. Calmer minds might wonder why we should bother paying any attention to the "Maestro" -- a man whose deepest convictions about the infallibility of self-correcting markets have been proven so profoundly wrong. But after Calculated Risk reminded me of a speech Greenspan gave to Congress in 2001, a speech that just gets better and better with each rereading in the years since, I simply could not resist. Please bear with me.

    First, two paragraphs from his Journal piece.

    The current federal debt explosion is being driven by an inability to stem new spending initiatives. Having appropriated hundreds of billions of dollars on new programs in the last year and a half, it is very difficult for Congress to deny an additional one or two billion dollars for programs that significant constituencies perceive as urgent. The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms. This is not new. For at least a quarter century analysts have been aware of the pending surge in baby boomer retirees....

    We cannot grow out of these fiscal pressures. The modest-sized post-baby-boom labor force, if history is any guide, will not be able to consistently increase output per hour by more than 3 percent annually. The product of a slowly growing labor force and limited productivity growth will not provide the real resources necessary to meet existing commitments.

    Sounds grim, doesn't it. We've seen this coming for 25 years, but in the last year and a half, we've lost all restraint and the only hope now is massive cuts in spending.

    With that in mind, let us jump in Alan Greenspan's hot tub time machine (yes, I conjured up that image on purpose) and return to 2001, when the U.S. federal government was sitting on a fat budget surplus. Back then, Alan Greenspan's big fear was that the government might actually end up paying off the national debt, and then start using its surplus to accumulate assets that rightfully belonged to the private sector. The future looked too bright!

    The most recent projections from OMB and CBO indicate that, if current policies remain in place, the total unified surplus will reach about $800 billion in fiscal year 2010, including an on-budget surplus of almost $500 billion. Moreover, the admittedly quite uncertain long-term budget exercises released by the CBO last October maintain an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs...

    Indeed, in almost any credible baseline scenario, short of a major and prolonged economic contraction, the full benefits of debt reduction are now achieved well before the end of this decade -- a prospect that did not seem reasonable only a year or even six months ago. Thus, the emerging key fiscal policy need is now to address the implications of maintaining surpluses beyond the point at which publicly held debt is effectively eliminated.

    So what happened? As Tim Fernholz reminds us, the fiscally prudent policies pursued and implemented by President Bill Clinton were summarily abandoned -- with Greenspan's tacit approval. The Bush tax cuts, the Iraq and Afghanistan wars, and the prescription drug benefit -- none of which were matched by spending cuts, or balanced by offsetting revenue -- quickly erased the surplus. Meanwhile, the new spending initiatives of the last year and a half were a direct response to a "major and prolonged economic contraction."

    Funny how it works, huh? When running a budget surplus, Greenspan did not foresee a problem in dealing with the expenses likely to ensue from baby boomer retirement. Instead, the problem was the surplus! But when running a deficit because of policies executed by a Republican government while he was in charge of the Federal Reserve, combined with a rescue effort aimed at counteracting the effects of the financial disaster for which he was at least partly culpable, suddenly, the future is a threat.

    I am reading, right now, Liaquat Ahamed's stunningly good "Lords of Finance," an exceedingly well-written and fascinating look at the central bankers who bungled the world's way into the Great Depression. At the outset, Ahamed notes that while the four men who are the focus of his attention, England's Montagu Norman, the U.S.'s Benjamin Strong, Germany's Hjalmar Schacht, and France's Emile Moreau were, during the '30s, towering figures of international renown, their names have mostly been forgotten now.

    Greenspan, I hope, will not be so lucky. But if he is, here's hoping that the 22nd century spawns a historian as excellent as Ahamed to remind a new generation just how disastrous the tenure of Alan Greenspan was as Federal Reserve chairman, and how the Wall Street Journal regularly provided a venue for his self-serving, blind hypocrisy.

    Author Lowenstein Greenspan's Arrogance Cost Us Dearly By: Dan Weil

    "It was Greenspan himself who didn't understand - much less 'fully understand' - that the Fed's lax mortgage regulation and easy monetary policies were setting America up for a disastrous fall,"

    May 18, 2010

    For anyone who didn't think former Federal Reserve Chairman Alan Greenspan was arrogant, recently released minutes of a Fed meeting in 2004 prove it, says financial author Roger Lowenstein.

    And that arrogance helped bring about the financial crisis, says Lowenstein, author of a new book "The End of Wall Street."

    At the Fed meeting six years ago, Greenspan argued against disclosing too much of the Fed's deliberations to the public, because the Fed might "lose control of a process that only we fully understand."

    "It was Greenspan himself who didn't understand - much less 'fully understand' - that the Fed's lax mortgage regulation and easy monetary policies were setting America up for a disastrous fall," he wrote on

    At the 2004 meeting, Atlanta Fed President Jack Guynn said, "(There is) growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida."

    Guynn noted that real estate buyers freely admitted, "They have no intention of occupying the units or building on the land but rather are counting on flipping."

    We would have been a lot better off if that view had been made public, Lowenstein explains.

    In another sign of trouble at the Fed, its own inspector general recently said examiners at the Chicago Fed failed to prevent risky real estate lending that caused losses at banks in Indiana and Michigan, Bloomberg reports.

    The banks later failed.

    [May 7, 2010] Greenspan Arrogance Set Up U.S. for Big Fall Roger Lowenstein -

    May 7, 2010 | Bloomberg

    In a newly released transcript of a Federal Reserve Board meeting in March 2004, former Chairman Alan Greenspan argues against disclosing too much to the public lest the Fed "lose control of a process that only we fully understand."

    This statement ranks as a sign of monumental arrogance. It was Greenspan himself who didn't understand -- much less "fully understand"-- that the Fed's lax mortgage regulation and easy monetary policies were setting America up for a disastrous fall.

    The context of Greenspan's remark was a discussion over how much to reveal about the Fed's thinking on monetary policy in general -- not on mortgages in particular. But mortgages were part of the Fed's monetary deliberations.

    At the same meeting, Jack Guynn, the president of the Federal Reserve Bank of Atlanta, warned of "growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida" and buyers were "freely admitting that they have no intention of occupying the units or building on the land but rather are counting on flipping."

    Had the Fed publicized such concerns, it might have led to a crackdown and forestalled millions of bad mortgages that would be written over the following 2 1/2 years. Instead, the Fed released minutes with sanitized phrases that had been stripped of alarming language.

    Mistakes of Regulators

    Greenspan's imperial presumptions remind us that no new law can prevent future regulators (or, for that matter, future bankers) from making mistakes. And as Congress heads toward the final phase of legislating reform, it should drop the pretense that it can control the actions of government officials.

    Democrats and Republicans have been squabbling for weeks over how to ensure that bailouts don't happen in the future. Various bills would attempt to tie the government's hands.

    This emphasis is misplaced. We can't hope to forecast the particular crises that will arise. Much less can we prescribe how officials will respond. Rather than dictating how government reacts to a financial disaster, we should aim to minimize the likelihood that one recurs, and limit the panic if it does.

    The best way to do that is to discourage leverage. In other words, the federal government should make it expensive for banks to assume too much risk -- whether on or off the balance sheet.

    Limitless Supply

    In a perfect world, markets would perform this function. Theoretically, a bank with too much debt would be punished by sharply higher borrowing costs (or by a cessation of credit altogether). But in the just-ended economic cycle, lenders and investment banks were extended cheap credit as if the supply were limitless.

    In the 1990s and 2000s, new-age financial theorists argued that, thanks to modern risk-management tools, the traditional fear of leverage was outmoded. Even the Securities and Exchange Commission bought into this nonsense. In 2004, it chose to lessen capital requirements on investment banks so long as the assets they owned were "liquid." The upshot? The "liquidity" of their assets, including mortgage bonds, proved to be ephemeral. Their debts proved permanent and crushing.

    And post-crash, when the International Monetary Fund looked for indicators that predicted which banks would fail, it found, lo and behold, that the "basic leverage ratio" was the most reliable guide to a bank's survival. To paraphrase a warning from the drug culture, "debt kills."

    Step Forward

    The overhaul bills go a long way toward corralling off- balance-sheet risk by insisting that derivatives trade on exchanges, where they would be subject to margin or collateral requirements. This is a big step forward.

    Until now, though, the proposals have suffered from a glaring hole: There has been no hard language to restrain borrowing. Bills in the Senate urged the creation of a new "systemic risk regulator" to monitor debt. The House bill went a step better, limiting leverage to 15-to-1, but only for banks judged to be systemically important.

    Senator Jon Tester, a Montana Democrat, has offered an amendment that gets even closer. Banks would be charged an insurance premium on every dollar of assets less their equity. The net effect is a charge on each dollar of borrowings.

    The Federal Deposit Insurance Corp. has been levying such a charge, temporarily, but typically it charges a premium only on deposits. The Tester proposal would, permanently, impose premiums on all bank liabilities.

    Reckless Borrowing

    With one further tweak, the bill would truly restrain reckless borrowing. The premium rate should rise with a bank's leverage ratio. In other words, a lender or investment bank that is leveraged 20-to-1 should pay higher premiums per dollar of debt than one that is leveraged 10-to-1.

    Although Congress is focusing on the size of banks, big banks aren't more unstable than small ones. But highly leveraged ones are. Moral hazard -- the awareness of the potential for a government bailout -- encourages excessive lending. So it's appropriate for the government to offset the risks that it has helped to create by imposing costs on riskier firms.

    For this to work, Congress must insure that leverage is measured accurately; that means a crackdown on banks that use swaps or repurchase agreements to mask their obligations. Also, creating a new systemic-risk regulator seems wasteful and naive. One such regulator (the Fed) is enough -- if only it would do a better job.

    Fed Chairman Ben Bernanke came into office promising more transparency. The Greenspan tapes confirm that Bernanke was on the right path: Openness is better.

    Finally, the Senate bill would narrow the Fed's charter, so that it would regulate only big banks. Bad idea. The Fed is too close to Wall Street as it is. At least, as currently structured, it is exposed to all views. In 2004, the Atlanta Fed tried to warn the Federal Open Market Committee of the dangers in mortgages. Too bad they didn't listen.

    (Roger Lowenstein, author of the just-published "The End of Wall Street," is a Bloomberg News columnist. The opinions expressed are his own.)

    [Apr 10, 2010] From Maestro to Cornered Rat

    April 9, 2010 | Where's Our Money

    When he used to appear before Congress during boom times, Alan Greenspan was worshipped as a hero. The Washington Post's Bob Woodward wrote an insider's, book-length Valentine dubbing him the maestro. That was a stark contrast to the bruising the former Fed chair took this week from the panel appointed to investigate the financial meltdown. The reviews of his performance were even tougher.

    No wonder. Greenspan lamely tried to evade responsibility for the policies he orchestrated that led to the worst economic crisis since the Depression. CBS Econwatch blogger Jill Schlesinger labeled Greenspan's appearance " a trip to the land of denial."

    Brooksley Born, one of the commissioners on the Financial Crisis Inquiry Commission, bluntly told Greenspan that the Fed "failed to prevent the housing bubble, failed to prevent the predatory lending scandal, failed to prevent the activities that would bring the financial system to the verge of collapse."

    A little historical context: Greenspan helped undermine Born's efforts to regulate derivatives when she was head of the Commodities Futures Trading Commission in the Clinton Administration.

    Frederic Sheehan, who's written several books lambasting Greenspan and the Fed, credited the panel with doing a decent job in preparing for his testimony. Sheehan noted that Greenspan wasn't used to having to answer follow-ups and seemed stumped. When he used to appear before the Senate as Fed chief, senators "were afraid, they didn't want to look foolish in asking simple questions. A lot of the really simple questions are the ones that are still unaddressed or need to be addressed but never were when he was Fed chairman, particularly about money and credit. He walked away from those questions again today."

    One common theme in reviewing Greenspan's performance was incredulity at his assertion that he was caught by surprise by the mortgage crisis. Diane E. Thompson, an attorney with the National Consumer Law Center, said in an interview with Washington Independent's Anne Lowrey that she and other members of the Federal Reserve's Advisory Council started warning Greenspan about mortgage problems in the early 2000s.

    Meanwhile Angelides has problems of his own. Members of his panel complained to the New York Times that he seemed more interested in headline-grabbing hearings than deep investigation, that the panel had wasted too much time getting started and had issued no subpoenas even though it has the power to do so. As David Dayen writes on Firedoglake, "If anyone was watching this but me and the WSJ they would have seen a cornered rat. Born nailed Greenspan – although, given the relative lack of interest in the FCIC, the benefit to that will be merely psychic in nature." Stay tuned….

    [Apr 09, 2010] Epic Fail Brooksley Born Demolishes Alan Greenspan

    April 9, 2010

    When in doubt just play dumb.

    That is what was going through my mind as watched Brooksley Born demolish Alan Greenspan a few days ago.

    Precise and on target, she left "the maestro" threadbare and searching for answers.

    From the Congressional Financial Crisis Inquiry Commission hearing:

    Brooksley Born: In your recent book you describe yourself as an outlier in your libertarian opposition to most regulation. Your ideology has essentially been that financial markets, like the OTC derivatives market, are self regulatory and that government regulation is either unnecessary or harmful. You've also stated that, as a result of the financial crisis, you have now found a flaw in that ideology.

    You served as chairman of the Federal Reserve Board for more than 18 years, retiring in 2006, and became, during that period, the most respected sage on financial markets in the world. I wonder if your belief in deregulation had any impact on the level of regulation over the financial markets in the United States and in the world.

    You said that the mandates of the Federal Reserve were monetary policy, supervision and regulation of banks and bank holding companies, and systemic risk. You appropriately argued that the role of regulation is preventative.

    But, the Fed utterly failed to prevent the financial crisis.

    The Fed and the banking regulators failed to prevent the housing bubble. They failed to prevent the predatory lending scandal. They failed to prevent our biggest banks and bank holding companies from engaging in activities that would bring them to the verge of collapse, without massive taxpayer bailouts. They failed to recognize the systemic risk posed by an unregulated over-the-counter derivatives market and they permitted the financial system and the economy to reach the brink of disaster.

    You also failed to prevent many of our banks from consolidating and growing into gigantic institutions that are now today too big and/or too interconnected to fail.

    Didn't the Federal Reserve system fail to meet its responsibilities - failed to carry its mandate?

    Alan Greenspan: First of all, the flaw in the system that I acknowledged was an inability to fully understand the state and extent of potential risks that were as yet untested...blah, blah, blah.

    It was absolutely priceless I tell you-especially since, as the head of the CTFC, Born pushed for the regulation of the derivatives that helped to cause the meltdown.

    Meanwhile, at the time, those same steps were strenuously opposed by Federal Reserve chairman Alan Greenspan, Treasury Secretaries Robert Rubin and Lawrence Summers and former SEC Chairman Arthur Levitt.

    Go figure.

    By the way, if you still haven't figured out how phony the bubble-based boost to GDP was a few years ago than you need to check out this video from Dylan Ratigan.

    It's really not that complicated.....

    Visit for breaking news, world news, and news about the economy

    Great Stuff Dylan.

    The only mystery is why we continue to put up with it.

    Related Articles:

    Sleep Tight, Mr. Greenspan

    Ratigan on Goldman Sachs: "Legalized Theft"

    The Goldman Sachs Oligarchy

    Elizabeth Warren Skewers GMAC

    To learn more about Wealth Daily click here

    [Apr 08, 2010] Greenspan Love Him, Hate Him By James Kwak

    The Baseline Scenario

    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.)

    Greenspan's prepared testimony begins with a massive attempt to pass the buck. The first two pages of his account of the financial crisis have to do with rapid economic development overseas and the accumulation of the fabled global glut of savings. But he reaches even farther back to . . . the fall of the Berlin Wall and the discrediting of communism.

    Greenspan also repeats the tired old argument that Fannie and Freddie were to blame (pages 3-4), focusing on their purchases of private mortgage-backed securities. This is something that, following Alyssa Katz, we also criticized Fannie and Freddie (and the government behind them) for. But tellingly, Greenspan's data only go up to 2003-2004 - because from this point the GSEs' share of the subprime market declined, as they were pushed out of the way by private sector players.

    But the more interesting part of the testimony begins on page 7, where Greenspan discusses the challenges of regulating the modern financial system. The problems he points to include:

    With this in mind, Greenspan favors rules that "would kick in automatically, without relying on the ability of a fallible human regulator to predict a coming crisis," including increases in capital and collateral requirements. This runs largely counter to the Obama administration's preference for leaving specific limits to regulators.*

    Here, though, I think Greenspan is still too optimistic. "I presume, for example," he says, "that with 15% tangible equity capital, neither Bear Sterns nor Lehman Brothers would have been in trouble." That is a huge increase over the current requirement of 4% (8% Tier 1 capital, but only half of that has to be tangible equity). But still, is it enough? As Steve Randy Waldman pointed out, Lehman turned out to be worth between $50 and $160 billion less than its books said it was worth just before its collapse. At about $640 billion in assets, that's a "mistake" of 8 to 25 percentage points. If, as Greenspan acknowledges, the products themselves are extremely complex and we can't count on anyone to evaluate them, how do we know that 15% capital is enough?

    When it comes to "too big to fail," Greenspan makes the same point, in similar terms, that we do in 13 Bankers: "The productive employment of the nation's scarce saving is being threatened by financial firms at the edge of failure, supported with taxpayer funds, designated as systemically important institutions," and "The existence of systemically threatening institutions is among the major regulatory problems for which there are no good solutions." But then Greenspan proposes solutions: namely, contingent capital (an idea I've criticized here, citing Gillian Tett) and resolution authority. He proposes breaking up TBTF institutions . . . but only after they fail.

    Nasiripour and McCarthy have additional statements by Greenspan from his responses to questions. One key point he was making was that regulators simply cannot keep up with the megabanks.

    Regulators can't keep up with today's megabanks, he said. They're too complex. Regulators, in short, don't have a chance.

    Greenspan, appearing before the panel convened to investigate the roots of the financial crisis, said that the "ideal way" to supervise banks would be to go through its individual loan documents - the way supervisors used to police banks and financial firms before they grew so large.

    But unfortunately, he lamented, that's no longer possible because firms are so complex.

    "We are reaching far beyond our capacities," Greenspan told the Financial Crisis Inquiry Commission. "It's not a simple issue of 'Let's regulate better,'" he said. "It's a different world."

    "The complexity is awesome," he noted.

    It's nice that, in his retirement, Greenspan has finally become humble about the prospects for regulation. I wish the current batch of government officials would share the same humility. Not because I'm against regulation - I'm definitely in the more/stricter/better camp when it comes to regulation. But because I think you have to be prepared for it to fail. So either we need to change banking so that it is simple enough to regulate again (which isn't going to happen). Or we need to reduce the size of banks so that when they do fail, they don't take the financial system with them.

    * In their defense, the administration might argue that those limits should be set by regulators but should then kick in automatically - although I'm not sure that's what they are saying.

    Selected Comments

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    1. James, neither you nor Greenspan could find a free market with both hands and a flashlight.

      • Interestingly, Dean Baker's article from Dissent just happened to be re-posted on Counterpunch today,
        speaking of the free market myth.

      • I hate it when Greenspan's view is described as that of an "ardent defender of free financial markets" (or equivalent). Since when is artificially cheap money, created by the central bank and encouraged by government objectives, all driven by the notion of "running the economy," part of a free market approach? So annoying.

        • You're right. We should go back to a "natural money" approach, where you only get "naturally cheap money" whenever nature yields a major gold strike.

          Oh, wait, that might be nature's gold, but gold mining is artificial. Dang. OK, scratch that idea.

          Let's go back to the beaver pelt trade economy. That would be "natural", right?

          Oh, wait, except that, if you use something artificial, like a spear, to kill the beaver, it's no longer natural.

          Well, whatever the solution is, it mustn't involve government. So artificial. Where do you ever find government in nature? I mean, if you look at, say, a baboon troop, there's no clear top-down leadershi– uh …. hm, there is. I wonder: Did they learn that by imitating human beings?

          Michael Turner

          • Are you saying that manipulated cost of money, risks obscured by depository insurance, and an implicit guarantee of bailing out large institutions are hallmarks of a "free market"? Because I think if you read my comment, I'm certainly not suggesting we consider establishing a baboon economy (although I must applaud your creative interpretation) - I'm only noting that calling Greenspan an "ardent supporter of free financial markets," or, more to the point, suggesting our financial system is anything close to a free market, is absurd on its face.

            The assumption that what we currently have is a free market is damaging. It lends credibility to the idea that we don't need regulation or any other intervention to fix the financial system because we'd be engaging in "socialist" actions, undermining our meritocratic, capitalist markets. If we don't accept from the start that the financial markets aren't currently "free," but in fact already subject to much intervention (intervention that contributed mightily to the crisis), then these arguments, however specious, gain more traction.


            • Right, much more than destroying the myth of the rational markets this crisis should have destroyed the myth of the rational regulator, and that is why many carrying an agenda do not really hear about what really happened.

              Per Kurowski

          • James

            Good summary of a lot of otherwise inchoate rage about Greenspan. I'd recommend to your readers Yves Smith's book Econned, if they've not read it already. A really good deconstruction of the drivers of this mess.

            Thanks for your hard work on this blog!


    2. "The complexity is awesome," he noted

      Not very reassuring words.


    3. I still wonder where a firm like LTCM would come out in all of this. Not a bank but apparently caused great consternation and problems.

    4. The trouble with the concept of mark to market accounting is that statements like "turned out to be worth between $50 and $160 billion less than its books said it was worth" don't mean much in a mark to market environment because "turned out" depends on the point in time at which you measure.

      Unfortunately, Greenspan is probably onto a political reality about breaking up financial institutions – the point at which that is most likely to be feasible is that when the institution has failed. Unfortunately, we missed the most recent opportunity (and erred in the opposite direction).

      As for whether banks can be made small enough so that when they fail they don't take the system with them, that is certainly the more realistic goal. But the the heard behavior of wall street will still be an obstacle. Lehman could easily have been three separate firms that had all made the same bets.


    5. Why does anyone even ask him to testify? Who is interested in his latest obfuscation? Even Ayn Rand would disown him at this point.

      the viking
      • Maybe he is worth listening to once in a while if it's he who has disowned Rand.

        Rich S
    6. All the gnashing of the teeth about "The Maestro" will go on for years. Ravi Batra exposed Greenspan in his 2005 book written in 2004 titled " Greenspan's Fraud". One could hardly pick a more rancid title. It took a lot of courage five years ago to out this fraud. I was surprised he even found a sufficiently brave publisher. In this case St Martin's Press.

      • I read the book and agree.

    7. James Kwak wrote:

      Greenspan: Love Him, Hate Him – excerpt

      "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."

      Greenspan: Fallible' regulators were right to allow subprime loans

      APRIL 7, 2010 – MCT NEWS SERVICE – excerpt

      "The concepts of 'unfairness,' 'deception,' and 'abusiveness' are not defined in the statute, and I do not believe there was any prevailing sentiment within the Federal Reserve - and it was certainly not my view - that entire categories of loan products should be prohibited as 'unfair' or 'abusive,' " Greenspan told the Financial Crisis Inquiry Commission in just his second appearance on Capitol Hill since the collapse of financial markets in 2008."

      • "In testimony before the Financial Crisis Inquiry Commission, former Federal Reserve Chairman Alan Greenspan defended his record during questions by Chairman Phil Angelides by saying he was "right 70 percent" and "wrong 30 percent" of the time.

        When asked whether the financial crisis was one of the times he got it wrong he answered, "I don't know."

        If there is a photo in the dictionary next to the word "clueless" it should look like Alan Greenspan. Imagine if airline pilots only landed 70 percent of airplanes, crossing guards only protected 70 percent of students or if your bank only honored 70 percent of your checks. It would be a public scandal. There would be indictments; prosecutions and surely the perpetrators would face consequences. We need the same expectation of safety for our banks that we have for airplanes flying America's skies–that they won't crash."


    8. No statute could define "unfair" or "abusive" without being grossly incomplete and validating as much abusiveness and unfairness as would be prohibited.

      I have noticed this though about all the hoopla about financial products. You almost never hear the guru's call these financial products what they are … incompetent. These products have failed from just about any perspective you care to measure them from if competence is delivering a reasonable result for investors. Might it just be that the professional class in finance exhibits far more traits of professional incompetence in product development than competence?. Might it really be mostly a case of mass financial group think where the professional could not think independently?


      • "These products have failed from just about any perspective…"

        But succeeded if you take the perspective of the companies who bet billions, lost, got bailed out by TARP, didn't get fired because they held America hostage ("we're the only ones who can understand these instruments") then congratulated themselves to millions in bonuses.

        Perhaps competence in the financial sector should be measured not in usefulness or finding a need and filling it, but in enrichment the professionals.


    9. I wouldn't consider the prospect of a simplified banking structure as so remote. Presumably you consider the political will to be lacking. This can shift; especially if banks continue to conspicuously obstruct reform regulation, also if they maintain practices that call their financial/economic function into question. A more fundamental problem than the big banks' complexity, and risk taking is that they are not adequately performing the basic purpose of banking. Let's not confuse tools, technology and devises with what banks have been doing since Venice, Amsterdam and London starting 600 years ago. If a man can steer the entire world financial system off course, why can't another one be just as influential in setting the ship straight. Volcker's dealt effectively with a fiscal situation considered at the time as dire and unresolvable as the current one. I am glad he is back where his words are listened to. His recommendations have been quite simple: re-divide banking. The rest you know.

      NE Wenglin
    10. Greenspan was appointed by Ronald Reagan – is that correct?

      • Correct. I want to say roughly '87 after Volcker had done the tough part of killing inflation. Reagan did "his part" to kill inflation and forever enseal himself as Republican demigod by killing off unions.

        Ted K
    11. I have always found the bathroom mirror to be the single best answer to who's to blame.

      Blame Nixon for ending Breton Woods and taking us off the gold standard. How 'bout old LBJ for debasing the currency? Can't forget Jimmy Carter for waking up the radical Christian right. How 'bout corporate America for using a Corporate/Christian coalition to advance free trade and deregulation? Greenspan, Clinton, Rubin, Summers, Bush, Bernanke, Obama are all fresh in your memory.

      Is there one person or group among the aforementioned that you did not at one time support? Just as I thought, the mirror will always show you who's to blame.

      Brad Thrasher

      • Is there one person or group among the aforementioned that you did not at one time support?

        No. Keep going. "Consumerism" too.


        • Russ is in a state of denial.

          Brad Thrasher
          • Just because you admit your own complicity, don't try to make things easier on yourself by slandering others with the lie that "everyone wants this".

            Nobody can ever just accept responsibility. There's always some kind of slimy caveat, like the fraudulent, "everyone's guilty."

            Like I said, it's not my system, not my consumerism, not my globalization, not my financialization, not my Bailout, and not my war. Although incomprehensible to a conformist like you, there are some of us out there.

            By your own testimony, those all belong to you. So at least have the spine to own them without further self-exculpatory lies.


            April 8, 2010 at 6:33 am


    12. Count me in the hate him column.

      Ted K
    13. James Kwak. This far into the discussions anyone with some professional respect for himself would have studied a bit more about the current regulations before speaking out. Clearly you have not!

      You keep on talking about current capital requirements of 4 to 8 percent, completely ignoring that for instance in the case of triple-A rated assets, because they were risk-weighted at 20%, those capital requirements were in fact .8 to 1.6 percent.

      Also, it is lack of understanding what keeps you bothering with questions such as if 15% of capital requirement would have been enough ex-post, because with a 15% capital requirement the too big to fail would ex-ante never have become too-big-to-fail!

      Why are you too-stubborn-to-understand? Don´t you get it? The principal reason why the too-big-to-fail became too-big-to-fail was that the regulators allowed especially low capital requirements for the typical operations of the too-big-to-fail.

      And please, have a little bit more of self-respect! To keep talking about a Greenspan being "the most ardent defender of free financial markets" is plainly ridiculous. A defender of free financial markets would never ever imposed on the markets, the way it was done in the regulations, the opinions of some few credit rating agencies.

      Wake up! I can understand a Simon Johnson keepinh mum on this because he cannot explain why he kept mum on this while at the IMF… but you James, you are young and don´t need to do that.

      Per Kurowski

    14. James, I love you. Don't change a thing.

      You are going to tell to me to read 13 Bankers, and I might, but after reading A Monetary History of the US (the chapter on the "Great Contraction" three times–it's still hard to follow); The Great Crash; Manias, Panics, and Crashes; The World in Depression; Lessons from the Great Depression; Did Monetary Forces Cause the Great Depression; Essays on the Great Depression; I feel my next book shoud be Eichengreen's Golden Fetters. You won't be hurt if I put off 13 Bankers?

      My point is Greenspan is right looking back, though he doesn't go far enough. The come apart began when the world went off Bretten-Woods and the flexible gold standard. Now I'm a fiat money kind of guy, and if you study the 1920s carefully, you have to conclude basing the international monetary system on gold was not only stupid, but close to evil in the amount of despair created during the Great Depression. Well, what do we have today? Eichengreen writes tellingly of the dollar as the international reserve currency. The dollar is better than gold, or at least the US management of the dollar during 2008 and 2009 was better than what central banks did during the 1930s, but a dollar based international monetary system is not stable.

      I agree with you and Simon 99% of finance is pure rent: a tax on the real economy to fund nefarious gluttons. I agree with your specific analysis, but I think you should look at the fundamental instability of a system based on the dollar. If you study the Flow of Funds, you see debt in the US as a perecent of GDP began its long climb when the world went to a dollar based fiat system. Too much debt, in the end, as always through the ages, is what caused the collapse.

      Write about a dollar based fiat international monetary system. You say read 13 bankers. Golden Fetters first.

      Keep up the good work

      Peter Donner

    15. As I hear it Greenspan has not given up on either Ayn Rand or free-market economics. He has only suddenly realized that there is a cadre of scoundrels, schemers, opportunists and downright crooks attracted to a regulation-free culture, and that the market system, ironically, is not too big to fail. I agree that there has to be some kind of unfettered system at the most basic level of establishing value, price and willingness to barter. But that is not what his practices promoted. No, Alan, you should have taken off the rose-colored glasses a long time ago.

    16. I think Greenspan makes these TBTF comments to undermine the Obama administration. When he talks, he speaks against what Obama is doing; instead, he should be encouraging Obama to go one direction. But by not commenting on Obama's policies one way or another, he makes them look like another bad guy or another bad gov't person who wants to screw with the free market.
      He is playing politics, not helping to fix things. He's a bad man who should be in prison with bubba, with NO soap on a rope.

    17. Give me a break!

      Greenspan – our, ostensibly, top Regulator – was so confident in the 'invisible hand' that he openly condoned FRAUD – asserting the market (!) would solve all ills, and thus Regulators and Regulation had no rightful role in the marketplace.

      His death penalty to Brooksley Born was only one case example in this glorious free market ethic of his.

      … and guess what happened?

      We got massive fraud in the 'deregulated' system he created, and it brought the global financial markets to their knees.

      Regulators can't keep up?! Then the banks should be broken-up and their businesses separated, simplified and re-regulated.

      Sounds more to me like HE couldn't keep up with the complexity once he let the genie out of the bottle.

      Which should be no surprise to anyone given that his 'free market' zeal starved the Regulators of funds, stripped them of their mandates, and the possibility of civil prosecutions that would scare the pants off any banker.

      Now he wishes us to believe that everyone else – from Fannie/Freddie to the Regulators were the problem – when HE was the one who brutally enforced an 'anything goes' ethic together with his cronies Summers, Geithner, et. al.

      Get real Greenspan!

      Lucy Honeychurch

    [Apr 06, 2010] Greenspan Signals Warnings for Bubble Maniacs

    Stock market manipulation as an economic policy instrument was Greenspan's invention. "In the United States the central mechanism for inflating the stock market and fueling the powerful recovery in junk bonds was Bernanke's shift to the radical "quantitative easing" (QE) scheme, in which the Fed printed $1.75-trillion of high powered money, channeled the excess cash into the coffers of the Oligarchic banks on Wall Street, which in turn bid-up the prices of high-grade corporate and junk bonds, thus narrowing yield spreads with US Treasuries. "
    Seeking Alpha

    "I guess, I should warn you. If I turn out to be particularly clear, you've probably misunderstood what I've said," former Federal Reserve chief Alan Greenspan was fond of saying when he controlled the Fed's money spigots. For many Fed watchers, it was a great relief when "Easy" Al finally retired from the Fed, since there is nothing more vexing than correctly interpreting Greenspeak.

    "Everything depends upon proper listening. Of ten individuals who listen to the same speech or story, each person may well understand it differently, - perhaps only one of them will understand it correctly," an eighteenth century theologian observed. So it was of great interest, listening to a March 27th, interview presented on Bloomberg TV, with the maestro, Mr. Greenspan, who is settling into the twilight years of his lifetime. This time, Greenspan spoke more clearly, about such arcane subjects such as "Asset Targeting," and the manipulation of markets.

    When asked about his outlook for the US economy, Greenspan answered by saying everything depends upon the direction of the stock market:

    Ordinarily, we think of the economy affecting stock prices. I think we miss a very crucial connection here in that this whole economic recovery, as best as I can judge, is to a very large extent, the consequence of the market's bottoming last March, and coming all the way back-up. It is affecting the whole structure of the economy, as well as creating the usual wealth effect impact.

    Imagine for just a moment that the Dow Jones Industrials has become a key instrument of national economic policy, and that by "actively managing" its direction, the government could impact the wealth of tens of millions of US households, and by extension, influence consumer confidence and spending. By ramping up the growth of the money supply, and slashing interest rates to zero percent, in order to inflate market bubbles, the Fed could in theory, fuel an economic rebound.

    Greenspan generally pursued an "asymmetric" monetary policy, in other words, always quick to slash interest rates and flood the markets with liquidity whenever the stock market was tumbling, but was very slow in draining liquidity or raising interest rates, when stock markets were booming. There was always an inherent bias towards asset bubble inflation, under the Greenspan Fed's policies.

    For big-time risk takers in the US stock markets, speculators could usually rely on the safety net of the "Greenspan put," or a quick easing of monetary policy to cushion the market from steep losses when risky bets turned sour. Under the tenure of the Fed chief Ben "Bubbles" Bernanke, speculators have celebrated the easiest monetary policy in history, which earned Mr. Bernanke the designation of Time magazine's "Man of the Year" for his creativity in running the printing press.

    According to Greenspan, the aggregate value of stock markets worldwide have increased by $15 trillion, with the US stock markets recouping $5.4 trillion of lost wealth. "We're going to get a significant rise in employment," he predicted. All this was accomplished in coordination with the G-20 clique of central bankers that pumped more than $5 trillion of liquidity into the money markets over the past year, along with another $9 trillion of state guarantees for bank debt and deposits.

    In the United States the central mechanism for inflating the stock market and fueling the powerful recovery in junk bonds was Bernanke's shift to the radical "quantitative easing" (QE) scheme, in which the Fed printed $1.75-trillion of high powered money, channeled the excess cash into the coffers of the Oligarchic banks on Wall Street, which in turn bid-up the prices of high-grade corporate and junk bonds, thus narrowing yield spreads with US Treasuries. In Greenspeak, the blossoming of finance is the massive monetization of debt, and carry trades borrowing at near zero percent to lend longer-term, at higher interest rates.

    Thanks to the booming stock market there were $311 billion of new stock offerings on Wall Street, including IPOs and secondary offerings, in the second half of 2009. Junk bond sales worldwide reached a record $38.3 billion in March 2010, as rising profits and ultra-low interest rates attracted swarms of yield hungry buyers who are fed up with zero rates of return on CDs and money market funds.

    US companies have slashed 8.4 million jobs over the past 27 months, cut wages and medical benefits, but boosted their profitability. US corporate profits jumped $109 billion in Q'4 to $1.4 trillion, up 31% from a year ago. S&P 500 companies have increased their cash hoard to a combined $1.2 trillion, while simultaneously impoverishing the American middle class to levels of three decades ago.

    Yet there is great optimism on Wall Street that a virtuous cycle will soon begin, in which cash-flush S&P 500 companies would start to hire new workers. However, the vast bulk of hiring over the next several months would be for temporary workers by the US government, for the census report. According to the Census Bureau, about 17,000 temporary workers were hired in the first quarter, with an additional 181,000 hires planned for the three months from January to March. The remaining hires for 971,000 temporary workers are scheduled for the April-to-June period.

    At this critical juncture, with the Dow Jones Industrials index bumping against the psychological 11,000-level, Greenspan was asked about the longevity of the "green-shoots" rally. What worries Greenspan is the slumping Treasury bond market, which has been trending lower for the past 15 months. Yields on the benchmark 10-year note are climbing dangerously higher towards the key resistance level of 4 percent. "It is a canary in the mine at this stage," Greenspan warned.

    "The way I would look at it, if the markets are working well, the short term outlook is one of increasing momentum. You can see it developing," he said.

    But if the 10-year note and the 30-year bond yields begin to move up, in other words, if the ten-year note begins to move aggressively above 4-percent that is a signal that we are in some difficulty. There is basically this huge overhang of federal debt which we have never seen before. It is going to have a marked impact eventually unless it is contained, on long-term rates. That will make a housing recovery very difficult to implement and put a dampening on capital investment as well.

    Greenspan is describing a "dangerous divergence" that is developing between a high and rising S&P-500 stock index, and a slumping US Treasury bond market. They are moving in opposite directions, and at a certain point in the future, if the Treasury bond market begins to tumble sharply lower, lifting yields sharply higher, either under the weight of massive new supplies or Chinese dumping of T-bonds ahead of a probable revaluation of the yuan against the US dollar, the divergence between the asset classes would grow even wider, to the breaking point. That triggers a stock market slide or crash of unknown magnitude.

    However, among today's stock market bulls, there's an unshakeable faith in the magical powers of the "Plunge Protection Team," (PPT), convinced that the Fed and Treasury can prevent 10-year yields from spiraling above 4-percent no matter how much supply hits the debt market, and prevent a replay of the Greek tragedy. For now, the Fed is putting a safety-net under the T-bond market by promising to keep the fed funds rate pegged near zero percent for an "extended period of time," hoping to attract yield starved investors to the long-end of the curve.

    "The economy continues to require the support of accommodative monetary policies," Bernanke told lawmakers on March 25th. "If it were positive to take interest rates into negative territory I would be voting for that," said the radical inflationist, San Francisco Fed chief Janet Yellen on Feb 22nd. Yet the Fed is winding down its year-long, $1.75 trillion monetization scheme this week, which could make it difficult for Washington to finance its massive budget deficit in the months ahead.

    Instead, there could be a torrent of T-bond sales by Beijing if the US Congress can marshal a veto-proof majority for a fast track bill in May to slap tariffs on Chinese imports, if Beijing continues to keep the yuan "misaligned" with the US dollar. "My belief is that China will not do anything unless they're required to, and every day we wait is a day we lose wealth, we lose economic advantage, we lose jobs," said New York Senator Charles Schumer on March 23rd.

    Senator Lindsey Graham, a South Carolina Republican, said he agreed quick congressional action was needed because China's currency reforms are frozen in suspended animation. "I think our pressure is going to make a difference, not only to China, but to the administration," Schumer said. "At the end of the day, China is too big to be allowed to have this under-valued currency advantage. The only thing they seem to respond to is pressure," Graham said.

    "The US internal and external deficits remain large, and its unemployment rate is extremely high. Since US politicians don't want to blame themselves, the best available scapegoat is China and its exchange rate," said Fan Gang, of the People's Bank of China on March 26th. Yet Fan conceded that "China may resume a managed float of the yuan, once the uncertainty of the overall post-crisis economic situation diminishes." Yet a stronger Chinese yuan could fuel a generalized rally in the commodity markets, and ignite a whole new round of inflation worldwide.

    Another headache for the "Plunge Protection Team" is the high and rising price of crude oil, which has hitched a ride to the global stock market rallies, and is now trading above OPEC's implied target zone of $70-to-$80 /barrel. The OPEC cartel has tried to slow the surge of crude oil by boosting its output to 26.8-million barrels per day (bpd), or roughly 2-million bpd above its self imposed quotas.

    OPEC slashed its oil output quotas by 4.2-million bpd in December 2008 to stop the slide in oil prices at $35 /barrel. However, although OPEC's compliance with the quotas has dropped to 53%, oil prices have continued to climb sharply higher, helped by stronger demand of roughly 900,000-bpd by China and India, and rapidly depleting oil output by Mexico's giant oil company – Pemex.

    Any significant rally by the Dow Jones Industrials above the psychological 11,000-level could be matched by a similar rise in the price of crude oil into the $85-to-$90 /barrel region, which in turn could strengthen the Canadian dollar, Mexican peso, and Russian rouble, and the precious metals. In order to avoid another "Oil Shock" to the global economy, Washington and its European allies might ask Saudi Arabia to boost its oil output further, since Riyadh has about 2-million bpd of spare capacity that it can unleash on the market at a moment's notice.

    While Greenspan said he sees little threat of inflation now, in the long-run, inflation will pick up unless the Fed withdraws the massive stimulus it has pumped into the economy. "We are still by any measure in a disinflationary environment." However, "unless we sterilize or unwind the big monetary base we've built-up, inflation will begin to take hold." The size of the Fed's balance is "not sustainable" and will eventually have to be reduced to "something just north of $1-trillion," he said.

    "My concern is that legislation or other actions on the part of Congress may prevent the Fed from withdrawing the stimulus," Greenspan added. Such actions have already taken place in Seoul, where the government has completely hijacked the monetary policy of the Bank of Korea. Texas Representative Ron Paul, a Republican, is leading an effort in Congress to repeal the Fed's immunity to audits of monetary policy, which could expose any clandestine intervention in the stock index futures market by the Fed and its agents on Wall Street.

    Still, there's a deep-seeded suspicion in the gold market that at some point the Fed will resume its massive money printing operations in order to prevent a surge in Treasury bond yields, sparking the next big round of inflation. Greenspan mostly lingered far behind the inflation curve when he was Fed chief, and never saw a bubble he didn't like. According to the commodities markets, the break-out of inflation has already begun and is buoying gold above $1,100 /oz.

    [Mar 9, 2010] Not Regulatory Imprudence, Nonfeasance~! By Barry Ritholtz

    March 8, 2010

    In his column titled An Irish Mirror, Paul Krugman notes "the most striking similarity between Ireland and America was "regulatory imprudence": the people charged with keeping banks safe didn't do their jobs." (emphasis mine)

    The phrase "regulatory imprudence" is far to imprecise - and wimpy - to describe what took place. Imprudent, as defined by Merriam Webster, is "lacking discretion, wisdom, or good judgment." (Imprudence is the "state of being imprudent").

    If the Fed was only guilty of bad judgment or lack of wisdom, we could live with that. After all, people are fallible and judgment can go awry.

    But that was not what occurred; rather, under Alan Greenspan, the Fed was guilty of Nonfeasance.

    According to West's Encyclopedia of Law, the definition of nonfeasance is far harsher: It is the intentional failure to perform a required duty or obligation.

    When Greenspan made the decision to not regulate or oversee non-bank lenders, his choice was nonfeasance. He chose not to do something that he was bound to do as part of his official duty. (In common law, this was punishable by fines or imprisonment or both).


    In principle I agree, although it may be misfeasance. I wanted to be sure I had my terms correct, so a quick check with Wikipedia (hardly an authoritative source) provides the following regarding duties of public servants:

    "At present the terms misfeasance and nonfeasance are most often used with reference to the conduct of municipal authorities with reference to the discharge of their statutory obligations; and it is an established rule that an action lies in favour of persons injured by misfeasance, i.e. by negligence in discharge of the duty; but that in the case of nonfeasance the remedy is not by action but by indictment or mandamus or by the particular procedure prescribed by the statutes.

    This rule is fully established in the case of failure to repair public highways; but in other cases the courts are astute to find evidence of carelessness in the discharge of public duties and on that basis to award damages to individuals who have suffered thereby."

    And what about Mr. Greenspan's successors ? Yes, they may have been handed a completely misguided effort to lead, but they chose to continue the course rather than make any attempt to correct the errors. Are they not equally culpable?

    Pat G:

    I agree with your, "intentional failure to perform a required duty or obligation." Which then makes it malfeasance; wrong or illegal conduct, especially in politics or civil service. Which is an unlawful act.
    Also "punishable by fines or imprisonment" but good luck with that…

    [Feb 23, 2010] And a round of applause for those who blew up the economy… by Stacy-Marie Ishmael

    Feb 22, 2010 | FT Alphaville

    We'd never heard of the Dynamite Awards before, but they appear to be - in ethos at least - a distant cousin of the notorious Darwins.

    But unlike the Darwin Awards, these gongs aren't handed out to those who've managed to kill themselves in inordinately silly ways. Instead, as the Real World Economics Review blog explained, the winners are:

    [those who] have been judged to be the three economists most responsible for the Global Financial Crisis. More figuratively, they are the three economists most responsible for blowing up the global economy.

    More than 7,500 people voted-most of whom were economists themselves from the 11,000 subscribers to the real-world economics review. With a maximum of three votes per voter, a total of 18,531 votes were cast. The poll was conducted by PollDaddy. Cookies were used to prevent repeat voting.

    The first-place awardee may comes as no surprise - Alan Greenspan, with the lion's share of the votes – but the second and third-place winners were interesting selections.

    For more, see the post at Real World Economics.

    Also nominated: Fischer Black and Myron Scholes, Eugene Fama and Assar Lindbeck.


    Osama would thank these people for doing what he failed to do.


    I don't understand why Black/Scholes get a look in. I assume it is because of their option model ?

    Nothing about the recent crisis has invalidated that model. It funtioned throughout. Yes, losses were made when markets were yukky, but these were inconsequential to the amounts of profits it had already realised. Since the model identifies the assumptions upon which it relies, it is not too difficult to understand and manage the remaining risks, and make sensible decisions.

    It is a profoundly useful model, and if you lose money on it, you are a fool, or very very unlucky.

    Don't blame the model.

    What has become invalidated is using "econometric" models (such as credit) where there was no hedge (the model was used as an excuse to bet). The two have been conflated. The price of houses always rises, and house prices are uncorrelated.

    That's is not an arbitrage model - in the absence of the ability to hedge those assumptions, it's an opinion. Nothing more.

    And while Scholes did lend his name to LTCM, that shouldn't detract from his achievements. Like many academics, he didn't understand the short squeeze.

    But BS showed us that we could value contingent claims relative to the underlying asset, provided that we hedged them, and they did so in a mathematically robust framework. Quantifying the work of French mathematicians in the early 20th century.

    Stupid people, who didn't understand that the model was an arbitrage (ie relied on hedging), then took open (unhedged risks) thinking that models, which had worked so well in other fields but were in fact so different in character, were all the same, lead to this downfall.

    These people don't understand the difference between a model and an analyst's prediction.


    Yup, I've been saying for years that Greenspan deserved the Nobel for accelerating the inevitable collapse of an unsustainable system by at least 10 years.

    Keen's a class act: I also like Dirk Bezemer's approach, plus Richard Werner, who actually came up with the QE phrase fwiw.


    Rather more infrequent than the Darwins because you need to have the global economy blow up first. Prob why you haven't heard of them. Steve Keen v keen on it. http://www.debtdef...rize-in-economics/

    [Feb 08, 2010] Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (Hardcover)

    Great book, great insights, deep understanding of "Politburo" mentality of Maestro.

    December 9, 2009 THE book on Greenspan by the #1 world expert, by Fernando del Pino Calvo (Madrid, Spain)

    Fred Sheehan is THE expert on Alan Greenspan and, in my view, this is THE book to know about him and his years at the Fed. Sheehan has written extensively about Greenspan and his policies for many years, being first skeptical and then critical when everyone else believed in the Maestro myth, which of course Greenspan himself and the media helped create through the long bull market. Thoroughly researched, the book is mostly factual, based on FOMC transcripts, memories from other Fed officials, conversations with colleagues, and other sources, each of them duly mentioned by the author. Among many eye opening issues, like his mediocre real forecasting track record, the transcript of the Senate confirmation hearing of the soon-to-be Fed Chairman back in 1987 will surely impress you. This is a serious book which shows the man behind the myth, and the politician - not the expert - Greenspan really was. Not only did he help create the bubble: he probably was a bubble himself. Finally, the book is a deep reflection on the flaws of the Federal Reserve as an institution. In the end, we must always focus on systems, not individuals. What has happened is not about a fallible man; it is about the flawed system that allowed him to do damage.
    December 5, 2009 Tremendously revealing and unusually sound, by Jeffrey Tucker "Jeffrey Tucker " (Auburn, Alabama)
    I figured that this book might be just another in the huge outpouring of post-crash reflections. I was wrong. The prose is impeccable. The research is extensive: I felt nearly a sense of guilt that the author did all the work and I had to do none. The theoretical framework is what surprised me most: he really understands debt, inflation, sound money, and power politics. So far, I would say that this book is the definitive account. It hits Greenspan in the only way that really matters: not whether his policies were as good as they might have been but the extent to which they served the cause of the State. I'm supremely impressed with this work. I should add too that I literally could NOT put this book down once I started it. My congratulations to the author who has produced a work that stands above the rest - head and shoulders above them.

    A final note here: I think this might be the only book so far to fully explain the nature of the relationship between Greenspan and Rand.

    December 5, 2009 Tremendously revealing and unusually sound, by Michael E. Lewitt

    This book is an insightful study of the profound failures of Alan Greenspan's tenure as Federal Reserve Chairman. Fred Sheehan clearly articulates how Greenspan created a system that privatizes profit and socializes risk. In doing so, he performs an extremely important task in speaking truth to power about a man who was unquestionably revered by virtually every powerful sector of the financial sector. Mr. Sheehan shows why this was the case - because Greenspan was serving the interests of Wall Street at the expense of Main Street.

    This book provides an indispensable explanation of the Greenspan years, and serves as a bold warning regarding the misguided policies that continue to lead this nation down the wrong path. Mr. Sheehan deserves great praise for this book, which should be read by every person who wants to understand what is happening to our system.

    January 20, 2010 The Truth Behind Alan Greenspan, by Norman Horn (Austin, TX United States) -

    Originally published at the LibertarianChristians Blog:

    For the bulk of my life so far, I have lived in the age of Alan Greenspan, the chairman of the Federal Reserve Bank from 1987 to 2006. Mentioning a Federal Reserve chair like this in the past would not have been considered normal, yet Mr. Greenspan has a sort of legendary status associated with him. Well, at least some people consider him to be an iconic figure, but more and more the general public is coming to realize the destructive effect he has had on the world economy. Books like Frederick Sheehan's "Panderer to Power" have something to do with the dispelling of the myth.

    Sheehan's book is the first critical, post-crash biography of Greenspan. Using Greenspan's own words, Sheehan tracks Greenspan's education as a young man, early professional life, his meteoric rise to stardom as a celebrity figure, and his tenure as Federal Reserve chair. The questions primarily raised are: What kind of man is this who has so much power over the world, and what did he do that has led us to today's economic crisis? The answers are quite surprising. Here are some of the things I learned about Greenspan.

    * Greenspan was supposedly a disciple of Ayn Rand, yet he probably did not understand what Rand generally was talking about. Nathaniel Branden wrote later, "I wondered to what extent he was aware of Rand's opinions." Apparently, he would even argue the question of his own existence with the objectivist coterie. Rand herself wondered, "Do you think Alan might basically be a social climber?"
    * Even in his pre-Fed years, Greenspan was actually a rather mediocre economist and forecaster. Time after time he would make highly-publicized predictions and yet the exact opposite would occur (see pages 43, 54, and chapter 7).
    * Greenspan was a master self-marketer, which is probably the reason for his rise to stardom. He constantly engaged the media and the New York financier social scene, hence he had everyone's ear without the wisdom to back it up. How else can you be both a professional economist and yet date Barbara Walters?
    * Even though Greenspan has supposedly had a historically apolitical career, he was a master politician (read: liar). One only need look to his involvement during the Nixon and Carter presidencies to realize that he knew how to play the political game brilliantly.
    * Greenspan's policies during his Fed years were incredibly political as well. He frequently timed his actions in accordance with what was politically expedient. Wall Street and the fat cat Congress could count on the legendary "Greenspan Put" to be their savior when things were looking down.
    * Post-crash, Greenspan has tried to play his own game of historical revisionism about his policies that led to the economic crisis. Sheehan exposes these and many other lies.
    * Greenspan has been hired as a consultant by many of the firms who profited from the economic crisis via government handouts. Go figure, the man who enriches Wall Street and causes the meltdown gets the extra paycheck...

    Clearly, there is much yet to learn about the man whom many called "the second-most powerful man in the world" for nearly twenty years.

    In summary, Sheehan's retrospective on Greenspan is a fascinating read, and I anticipate it will become a valued resource for those looking to understand the Greenspan years from a perspective that offers more than tacit approval of inflationism and government intervention in the economy. Keep in mind, though, it is not an easy read. Economics is discussed at a fairly high, but understandable level. You will probably end up like me, referring to Wikipedia and other sources to recall certain investment and econ topics. Nevertheless, Panderer to Power is worth your time if you desire more knowledge about the Greenspan legacy.

    Indrajith A. Weeraratne "Andrew Weeraratne " (Miami, Flordia, USA)

    It is a timely written horror story that you won't be able to put down if you are into money. A loud wakeup call to the citizens as the USA has been descending on a path of corruption decade after decade with each succeeding decade getting deeper into foul play following the historical footsteps of ancient Rome, this book, on a personal level will make you understand the trends affecting the financial markets. Thus anybody who wants to make money in the markets should read this book because unless you know the system insightfully you will not be able to make money through the system. The author, Fred Sheehan, does not give us his opinion but give us facts using the synopses of speeches made by those in power during the decade of greed. However be prepared to be overwhelmed as the book, within its limited pages, attempts to cover a whole lot of material that took the financial markets in an unprecedented roller coaster.

    It is the story of Alan Greenspan who rose from a non-illustrious career with no track record to write home about to be probably the most powerful man in the world as the Chairman of the Federal Reserve Board and held that position longer than any other. As you read you will realize that if there is a prize for the best politician ever lived, Greenspan to be a formidable candidate for that position for it was his skill at politics gotten him there. You cannot blame Greenspan. After all he was the product of the environment that facilitated his meteoric rise. There is an instance where the author describes a party that Greenspan attended (where people were being awestruck by the mere appearance of Greenspan the economist rock star) where he mentions also the attendance of Jerzy Kosinski the author of "Being There." "Being There" tells the story of a simpleton come to be admired as a genius by the President of the USA and others around him because they begin to interpret everything he says as words of a sage.

    Sheehan points out that Greenspan was elevated into cult status by the system in spite of the fact that enough sophisticated people were alarmed as to the direction the country was heading warning how he could push the whole global economy into a tailspin. It is impossible to figure out why it went to such an extent in a country with more Nobel-prize-winners than any other nation. The conclusion I could reach is that people in power knew the scam being carried on by Greenspan as the Fed Chair but kept quiet because by knowing what was going on they could make unimaginable amount of wealth. No other point in history has insiders have made so much wealth as stocks went over thousands of percent. So all insiders had to do was to own shares of companies and keep quiet watching the money being created by the Federal Reserve snowballing values into stratospheric levels.

    Greenspan is an enigma because he seems like a man who would understand that an economy cannot be sustained forever if the system has to depend on creating more and more money and the money being created end up only in the hands of a few. Then the question is why did he continue to carry on with such disastrous policies. The author attributes it to pandering to power. But reading the book I got the impression that Greenspan estimated as long as the Federal Reserve has the power to create unlimited amount of money he could carry on that scheme till he retires and when the crumbling down finally comes, people to place the blame on his successor. His involvement with president Reagan who turned this country from the greatest creditor to the biggest debtor nation paving the way for runaway deficits and still being loved deeply may have given him the impetus for that. However, he may have misjudged the courage of people such as Fred Sheehan to bear it all. In the current atmosphere, the only place people will be able to read such an inside account is in books such as this. Do not expect the corporate-owned media to give you such factual accounts.

    The author shows how the current Chairman of the Federal Reserve, Ben Bernanke stood behind Greenspan loyally fanning the fire of speculation. Let's hope the President and the Senate that planning on confirming the current Chair to another term will read Sheehan's book. It is impossible to believe that recession induced by the actions of the reckless Fed is over, especially when the medicine they use to cure is the same old medicine that took us there. So the epilogue for these actions may be written yet in the future. Stay tuned.

    MacKenzie (New London CT) Alan Greenspan was widely regarded as an economic genius, as wise statesman who guided the American economy through troubled waters. Events of the past years cast doubt upon Greenspan's credibility. Sheehan has removed all doubt on this matter: Greenspan was most certainly not a wise and responsible steward of the American financial system.
    Real history shows that Greenspan was a just a player in a inefficient politicized system. Readers might be tempted to see Greenspan as a villain, but I think there is a broader lesson here. Nobody can make our Fed regulated banking system work. Sheehan makes it clear that Greenspan is a smart man, but there is simply no way anyone can resist the political pressures of this system. Sheehan has done a great service by debunking the Greenspan Myth, and the mythology of the Fed in general. Let's hope that we never see the development of a Bernanke Myth.

    December 8, 2009 An Essential Eye-opener, By Vincent F. Celli "VFC" (ST Augustine, Fl)

    Mr. Sheehan has written an insightful analysis of the Greenspan years, which throws light on the darker side of Greenspan's tenure at the Federal Reserve Bank. Like many who listened to Greenspan speak, I was often puzzled as to what he meant. Mr. Sheehan, with an impeccable understanding of economic forces, reveals why and how Mr. Greenspan left us with our present economic disaster. He consistently provided access to gobs of capital for financial interests, and completely abandoned his duties of oversight. The result: the financial sector grew from 10% to 40% of GDP, while billions of dollars flowed into financial profits, only to be sucked into the inevitable black hole that had been created. Mr. Sheehan illuminates this process brillianty and is to be complimented for his efforts. I was entranced by the book and urge anyone who wants to understand the downside of Greenspan's legacy to pick up this book. Your time will be well spent. The best book I have read to help you understand our current economic woes and why they happened.

    December 7, 2009 A penetrating complement to "Age of Turbulence", Hughes" (Northfield, New Jersey United States)

    This is a well written, deeply researched and thoughtfully analyzed account of Alan Greenspan's ascent to power. Author Fred Sheehan provides a critical account of the Fed Chairman's rise to prominence to support the proposition that Greenspan betrayed his principles--early and often-- to further his own personal ambitions. This book is an indictment of the man and the system that allowed him to flourish. It should be read as a complement to "Age of Turbulence", Greenspan's own interesting but overly sympathetic recollection of history.

    [Feb 8, 2010] An interview with Fred Sheehan

    Frederick Sheehan was interviewed by Jim Puplava on Financial Sense Online over the weekend and the audio has been matched up with some imagery in the YouTube clip below. Recall that Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession.

    The fact that he studied under Arthur Burns came as a surprise to me but, when you think about it, it makes a lot of sense since, in the fullness of time, history will likely view these two as the worst Fed chairmen of all time.

    Also, despite the long-held belief that Greenspan was an ardent follower of Ayn Rand, apparently he wasn't interested in much more than rounding out his Rolodex, all of which helps to explain Sheehan's title selection for the book.

    Three Sins, One Gift - Sin #1

    January 29, 2010 | The Mess That Greenspan Made

    Leading into Sunday's four-year anniversary of the retirement of former Fed Chairman Alan Greenspan, the January 2006 series "Three Sins, One Gift" is being repeated this weekend. This, the first item in the series, originally appeared here on January 13th, 2006 .


    A story in The Economist this week has prompted an early kick-off to a series of posts at this blog - a series that had already been planned for later this month, but which begins today instead. The series is intended to shine light on three sins committed by departing Federal Reserve Chairman Alan Greenspan, who is set to step down on January 31st.

    On that day, the final installment will detail the gift he has bestowed.

    As anonymous economists at The Economist have already done most of the heavy lifting required to make the"margin: 0; padding: 0"> They are masterfully written and available at no cost.

    Sin #1 - Ignoring Asset Prices

    The legacy of Alan Greenspan is now inextricably intertwined with, and will likely suffer the same fate as, the over-inflated American real estate market.

    If housing cools painlessly over the next few years reverting to more normal levels of growth that are sustainable into the next decade, and if over-extended homeowners successfully adjust to a changing world of reduced expectations, then, and only then, will current criticism of the outgoing Fed Chair have been proved both premature and ill-advised.

    If, over time, the citizenry maintain much of their currently elevated standard of living, as they have been led to believe is nearly an inalienable right, then the departing chairman will have demonstrated that his detractors were wrong, and will have rightfully earned the praise that accompanies being universally regarded as the greatest central banker in history.

    Many believe these rosy scenarios are unlikely and that ignoring asset prices has been sinful.

    Today, on the surface, the American economy is the model for the rest of the western world - robust GDP growth, low unemployment, and low inflation.

    By most statistical measures emanating from Washington, we are living in a "goldilocks" economy - a sort of dream world where no shocks to the system can derail growth or prosperity - wars, hurricanes, deficits, political intrigue - none of it matters.

    But where would we be without rising home prices?

    Rising home prices, following historically low interest rates held far too low for over two years, have enabled home equity withdrawal at unheard of rates. This has supported personal consumption which now contributes to GDP growth as never before in history, and has resulted in the creation of millions of housing related jobs.

    This has seemingly worked wonders in response to the bursting of the stock market bubble at the turn of the century, but with housing now beginning to cool, the natural question to ask is, "Where do we go from here?"

    Like stocks in the late 1990s, why were home prices allowed to rise at many times the rate of inflation, leading all to believe that prosperity would be eternal?

    The Economist asks the same questions.

    The Economist's long-running quarrel with Mr Greenspan is that he chose not to restrain the stockmarket bubble in the late 1990s or to curb today's housing bubble. He has declared himself vindicated in not pricking the equity bubble with higher interest rates, but instead to let it burst and then cut rates sharply to "mop up" the damage. The economy has fared better than we expected since share prices slumped, with only a mild recession in 2001. But a better test of Mr Greenspan's policies is not whether America escaped a deep recession, but whether the economy would today be on firmer foundations if the Fed had acted against that bubble.

    How monetary policy should respond to increases in the prices of assets such as houses or shares is the biggest dilemma facing central banks everywhere. The Fed takes account of rising asset prices to the extent that they boost spending and hence future inflation. But the burning question is: should it respond to asset prices even if inflation seems under control? Three main arguments are given by Mr Greenspan and his colleagues for why central banks should ignore asset prices other than their impact on inflation. First, that monetary policy focused on inflation and growth is the best way to achieve economic stability. Second, that one can never be sure that what looks like a bubble really is a bubble. And third, that interest rates affect the economy more like a sledgehammer than a scalpel. A modest rise in rates is unlikely to halt rising share prices, but an increase sufficient to pop the bubble would slow the whole economy and could even cause a recession. Mr Greenspan thus concludes that it is safer to wait for a bubble to burst by itself and then to ease monetary policy to soften a downturn.

    Consider each of these arguments in turn. First, the job of a central bank is not just to prevent inflation, but also to ensure financial stability. Yet the three biggest stockmarket bubbles in the past century-America's in the 1920s and 1990s and Japan's in the 1980s-all developed when inflation was low. Arguably, Mr Greenspan has defined the role of monetary policy too narrowly. Inflation is often described as too much money chasing too few goods. But in a world awash with cheap money and with potent new sources of supply, such as China, to hold prices down, inflation will remain low and so fail to signal if an economy is overheating. Increased central-bank credibility also helps to anchor inflation. If central banks hold interest rates low, this will encourage risk-taking in financial markets and excess liquidity will spill over into asset prices rather than traditional inflation.

    Asset-price inflation can be as harmful as conventional inflation. A sudden collapse in share or house prices can trigger a deep downturn. And surging asset prices also distort price signals and cause a misallocation of resources-by encouraging too little saving, or too much investment in housing, so reducing future growth. This is why central banks need to pay closer attention to asset prices.

    Second, it is not, as Mr Greenspan argues, impossible to identify bubbles. When prices have lost touch with fundamentals and there are other signs of excess, such as rapid credit growth, alarm bells should ring. Mr Greenspan's "irrational exuberance" speech in December 1996 shows he was concerned about a bubble inflating long before the bubble reached its full extent. And transcripts of meetings of the Federal Open Market Committee (FOMC, which meets to set interest rates) now make clear that several Fed officials were fretting about the bubble in 1998 and 1999. At the December 1999 meeting, when discussing the stockmarket, Mr Greenspan said: "It is only a question of how much of a bubble there is."

    Moreover, central banks do not have to be certain they have identified a bubble before they act. Monetary policy has constantly to deal with uncertainty-such as the size of the output gap. Uncertainty is a reason for responding cautiously, but not for doing nothing.

    What of Mr Greenspan's third claim that, even if a central banker is pretty sure there is a bubble, there is little he can do about it because interest rates are a blunt tool? In August 2005 Mr Greenspan said: "Given our current state of knowledge, I find it difficult to envision central banks successfully targeting asset prices any time soon." But he was setting up a straw man. Nobody is seriously arguing that central banks should "target" a particular level of asset prices. Most economists accept that aggressive action to "prick" bubbles could also be risky. Instead, the debate today is whether central banks should "lean against the wind" when asset prices appear dangerously out of line with fundamentals, raising interest rates by a bit more than inflation alone would call for.

    While quarreling with the use of the word "inflation" to casually exclude the cost of housing, there is little else to object to here. These are the same points made on a number of occasions in these pages.
    1. Asset prices affect long-term stability
    2. The formation of asset bubbles can be detected
    3. Monetary policy can be used to combat rising asset prices
    Regarding the last point, it seems reasonable that regulation of mortgage lending should work alongside monetary policy to do what is in the best long-term interests of an economy, impinging as little as possible on the operation of free markets.

    The role of the Federal Reserve and other government agencies in this area has been much too little and far too late to have any meaningful effect on the consequences that are likely to arise as a result of credit that has already been extended.

    The horse has long since left the barn, as they say.

    Fittingly, Monetary Myopia concludes with a drinking analogy that refers to today's economy as a "mess". We are humbled and gratified that The Economist shares our view, and find it impossible to resist closing with these words as well.

    In December Mr Greenspan was made a Freeman of the City of London. One of the traditional perks of this honour is that he can be drunk and disorderly without fear of arrest. The snag is that his policies have also encouraged drunk and disorderly asset markets and intoxicated consumers. When the party ends, Mr Greenspan will not be there to clean up the mess. But end it surely will.

    Recommended links

    Greenspan Put

    Economist's View The Greenspan Put and Excessive Risk Taking


    1. As I've watched the Securitization Mess unfold since last August, and opined about its inevitability prior, I have been awestruck by the silence from those who ought to have spoken loudly about the systemic corruption at work. I have been disgusted by the wanton greed from those who were knowingly profiteering from what inevitably would hurt those drawn into the deception. I have been dumbfounded by the blind faith of true believers in so-called "new economy" thinking, whether pundits, politicians, or CEOs. In all it brings to mind a couple of my favorite quotes:
      Those who give no thought to that which is distant will find sorrow near at hand. Confucius (paraphrased)

      People don't learn from the mistakes of others. They seldom learn from their own mistakes. Never underestimate the power of human stupidity. Robert Heinlein (paraphrased)

      As to why we don't learn from mistakes, we need not look further than what cognitive psychologists and decision theorists have been yarding together for years under headers like Self-deception Biases, Heuristic Simplification (information processing errors), Emotion/Affect Disorders, and Social Interaction Disorders.

      As to the systemic nature of this Securitization Mess, I'll leave you with Doug Noland's recent words:

      Confirmations, Doug Noland, Credit Bubble Bulletin, Feb. 22: … [T]he unfolding Credit Crisis has made a major leap toward the heart of the Credit system. I have no way of knowing to what degree widening spreads are being dictated by "technical" hedging-related trading dynamics, as opposed to fundamental issues with respect to the faltering U.S. economy; rapidly deteriorating corporate balance sheets; a highly susceptible leveraged speculating community; the vulnerable GSEs; a distressingly illiquid Credit market; and heightened systemic risk more generally. To be sure, a strong case can be made that the current backdrop is quite detrimental to a highly leveraged and speculative Credit system. The markets rallied late this afternoon - and perhaps they will rally further next week - on talk of a bailout for troubled Ambac. Unfortunately, there has been ample Confirmation that the Evolving Credit Crisis has quickly spiraled way beyond the "monolines."
      Related: Flock Mentality, from Alea

      P.S. I'm now pulling together recent "finds" from others on the sidebar of my blog. Or you can find them here, via Google Reader "Shared Items" (along with a feed).

    Many now detest the Fed so much, because of Greenspan's role in aiding and abetting idiotic activities that ultimately harm society

    The question arise was in a closet communist-style elitist who believed that the price of money and even money supplies should be centrally planned as if by the Central Planning committee ? see The Greenspan Legacy

    Alan Greenspan warned of "irrational exuberance" in 1996 and then he inexplicably kept feeding the very stock-market bubble he saw growing. Eventually he even bought into the New Era nonsense and foolishly believed the "productivity miracle" justified extreme stock prices.

    It might be that Bernanke took over the command of the Titanic just before it reached the iceberg.

    The reserve currency status of the dollar is usually called an "exorbitant privilege" for a reason. The country with reserve currency can run large and prolonged current account deficits, financing them in its own currency. Over the past few decades the US has functioned as a world banker, borrowing short and lending long. And it has earned a significantly higher rate of return on its assets than it has paid on its liabilities – another aspect of the "exorbitant privilege". But if foreign central banks change the currency composition of their portfolios away from dollars, this would likely result in significant dollar depreciation.

    Yes, capital impairment is preventing lending. However, lending is not going to revert back to what it was even if the capital issues are solved. Psychology has changed and it's extremely unlikely to change back for a long time. A secular peak in lending craziness has been reached and the pendulum has far, far to go in the other direction.

    The process has just started. More writeoffs are coming from commercial real estate and credit cards. Furthermore there is no reason for businesses to hire or expand given rampant over capacity everywhere. This recession is going to be far deeper and last far longer than anyone thinks.



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