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October 16, 2009

Greenspan Gone Wild (Again)
by Brady Willett

Former Federal Reserve Chairman Alan Greenspan is the worst Fed boss in history, but boy-oh-boy how we loved to watch him smile. We were so attracted to Mr. Greenspan's girlish grin, in fact, that he could say just about anything and people would eat it up: "I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said". How delightfully playful! He really must be the world's best central banker!

But if you forget that Greenspan's charisma was intoxicating and the asset bubbles he administered enthralling, what you are left with was a man who did absolutely nothing to police the financial markets and, arguably, everything in his power to ensure that the markets were not policed. Why would such a record of failure not be punishable or, at minimum, seriously investigated? Why indeed...

Life Continues To Be Good For Greenspan

Since leaving his post Greenspan has alluded to but not yet amassed the courage to plead forgiveness for the fact that his view of the world was completely wrong. Specifically, Greenspan has said that his quest for self-regulation was a shortcoming, that bank capital requirements should actually be raised from time-to-time, that asset bubbles can be observed before they burst, that someone should try to police the markets, and that the Fed's actions (keying on Bernanke's not his) do relate to future inflationary pressures. On this last topic, discussed by Greenspan only a few days ago, a sense of unbridled bafflement boils within those familiar with the teachings of Greenspan. Quite frankly, has Greenspan miraculously been blinded by the Austrian lights?

"You cannot afford to get behind the curve on reining in this extraordinary amount of liquidity because that will create an enormous inflation down the road" Alan Greenspan. October 2, 2009

Given that Greenspan's Fed lived almost exclusively behind the curve and that over nearly two-decades Greenspan never once really tried to temper the speculative manias his brand of liquidity helped induce, the above comments are amusing, to say the least.

Regardless, only a few years removed from office and Greenspan continues to contradict everything that he previously stood for. And even though it is his own words that have become the body of evidence by which his deplorable record as Fed Chief should be relentless attacked, few seem outraged as Greenspan's shameful collection of contradictions grow. Instead Greenspan continues to get paid very well to smile and speak, and he is permitted to calmly reminisce of his jazz playing days while writing books in his bathtub (you can't make this stuff up).

Encore!

What can Greenspan possibly do to top his shocking comments of recent years? Well, he could argue that large systemically connected banks should be broken up and that the falling U.S. dollar is not that big deal. But not even Greenspan seems capable of conjuring up such aberrant comments. Oh wait, he just did:

"If they are too big to fail, they're too big." NYT

"I'm not overly concerned about the most recent decline in the dollar" Bloomberg

During his reign as Fed boss Greenspan neglected to do something as simple as raise margin/bank capital requirements to try and safeguard the financial markets. Now he is open to the idea that some of the largest and most financially opaque companies in U.S. history should be busted up? At risk of thinking that you have completely lost it Mr. Greenspan, please say something nonsensical and smile:

"In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that's what we need to do."

Yeah, that'll do.

As for his dollar beliefs (which every Fed Chairman apparently takes an oath to lie about), before taking over for Volcker in 1987 Greenspan thought that, "over the long run" the value of the battered dollar would go "significantly lower." That Greenspan was/is right is not the issue. Rather, the recurring theme is that as Fed Chief Greenspan said and did nothing (and meant everything), but before and after his reign he actually offered specific opinions.

In short, the wild and ongoing story of Greenspan has little to do with a man changing his opinions as the facts change. Rather, Greenspan is guilty of trying to revise/ignore the historical record in an overt attempt to recast his tarnished image into that of a respected market thinker. The two thoughts that remain inescapable during this process are that Greenspan was the worst Fed Chairman in history and that he continues to blithely overlook the severe consequences of his actions, or lack thereof, while he ran the monetary show. Granted, if asked about regrets it must be extraordinarily difficult for Greenspan to objectively answer "my entire tenure was an utter failure", but he should at least make an effort.

For the record Mr. Greenspan, when TIME is taking your picture for a cover entitled "The Committee To Save The World", the Queen is making you an honorary Knight, and nearly everyone showers you with praise as you talk nonsense, you have ceased to be an effective regulator. This is not to suggest that you ever were.

Brady Willett
FallStreet.com

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