Pin the Tale on the Donkey
A 3/19/2010 article on Bloomberg reports the following, "Former Federal Reserve Chairman Alan Greenspan said the central bank and other U.S. regulators "failed" during the financial crisis because they became too complacent about risks". They go on to report the following quotes from Alan Greenspan:
Even with the breakdown of private risk-management, the financial system would have held together had the second bulwark against crisis -- our regulatory system - functioned effectively," Greenspan said in the text of a speech at a Brookings Institution conference today. "But, under crisis pressure, it too failed."
Bloomberg further reported, "Greenspan echoed comments he made in a paper released yesterday citing the central bank's failure to rein in the housing bubble and growth of the largest U.S. banks. Greenspan, 84, who ran the central bank from 1987 to 2006, said low interest rates weren't to blame for the inflating the bubble, placing the blame instead on regulators". Bloomberg went on to quote Greenspan:
"Even though for years our largest 10 to 15 banking institutions have had permanently assigned on-site examiners to oversee daily operations, many of these banks still were able to take on toxic assets that brought them to their knees," Greenspan said
Bloomberg reported one mort interesting note, "The former central bank chief said he and others at the Fed didn't fully understand the extent of the housing bubble and its ramifications for the economy. In October 2008 testimony before Congress, he said free-market ideology may be flawed in the wake of a "once-in-a-century credit tsunami."
When I first read this piece, I almost fell out of my chair laughing, hysterically. Greenspan's comments seem highly arrogant or ignorant, there's a fine line between the two. It seems Mr. Greenspan is trying desperately to manage his legacy.
Absolutely, Federal Reserve Policy of low rates combined with flooding the world with more dollars was the culprit of all the bubbles this county has faced. The money supply is the one continuous ingredient behind the tech. bubble and the real estate bubble and potentially a bubble in gold. First, government blamed real estate and mortgage brokers. Then, it blamed Banks and Wall Street. Now, it's blame regulators. In the merry go round of blame, he's failed to "Pin the Tale on the Donkey".
Free market systems/ideology would have worked just fine; accept for the government pouring gas on the fire with increased money supplies and low rates. Let's not blame free market ideology; it's the one thing that works if not tinkered with or manipulated by politicians and bureaucrats. That's the problem.
If Mr. Greenspan can't foretell bubbles like so many of us on Safehaven and other blogs, then how does he expect federal auditors to see mounting risk ahead of time since they both work for the same government. It seems highly contradictive to say the least.
How do federal auditors control risk and put the breaks on, when the 800 pound gorilla (Federal Reserve Policy) is firmly standing on the gas peddle of asset bubble? If federal auditors were supposed to control risk, then logically, they would have had to manage Alan Greenspan at the beginning, and the last time I checked, they didn't have that authority. Not a bad idea though?
Also, Notice how Alan Greenspan didn't blame Politicians for promoting real estate ownership into ever rising prices through the insanity of more money through Freddie and Fannie.
I say, "Come on Alan, get real and take ownership". Quit trying to manage your legacy before you leave us. You've had your time and blew it. You're no long the big man on campus blowing bubbles, so how about just enjoying your retirement years and leave us be. Do we really need your misguided notions on who's at fault in this mess? "Neigh", I say my friends, don't let Alan Greenspan bamboozle you with his Mumbo Jumbo. Let's pin the tale on the donkey.
Hope all is well.