Courtesy of Tim Iacono, at The Mess That Greenspan Made
More tarnish on the Greenspan legacy
This report in today’s Wall Street Journal captures the new thinking at the Fed:
The Federal Reserve and academics who give it advice are rethinking the proposition that the Fed cannot and should not try to prick financial bubbles.
"[O]bviously, the last decade has shown that bursting bubbles can be an extraordinarily dangerous and costly phenomenon for the economy, and there is no doubt that as we emerge from the financial crisis, we will all be looking at that issue and what can be done about it," Fed Chairman Ben Bernanke said this week.
The bursting of this decade’s housing bubble, which was accompanied by a bubble of cheap credit, has wrought inestimable economic damage. The U.S. economy was faltering before the crisis in credit markets recently intensified, rattling financial markets and sending home prices down further. Even if the government’s decision to take stakes in major banks works, it could take weeks for money to flow freely again.
Obviously. Well, better late than never.
Hopefully, this won’t be a case of being too late.
In today’s American Banker can be found this story with a "Greenspan Mess" sighting right there in the title.
[Note to financial writers: This kind of takes the thrill out of it for those of us who realized what was coming years ago and now spend a good deal of time on the lookout for others who are just catching on. Remember the rule: the two words must be within two paragraphs or one hundred words of each other.]
Greenspan’s Fingerprints All Over Enduring Mess
By Timothy D. Naegele
In the fable "The Emperor’s New Clothes," two make-believe weavers purport to spin a fine suit of clothes for the emperor, which is made of beautiful material that possesses the wonderful quality of being invisible to any man who is unfit for his office or unpardonably stupid. The potentate and his subjects acknowledge that the garments are very fine indeed. That is, until one little child sees the emperor marching in a procession, and says at last: "But he has nothing on at all" — and the grand swindle is exposed for all to see.
The U.S. economy as well as economies around the world have been going through wrenching experiences lately, and much more is likely. Former Federal Reserve Chairman Alan Greenspan is the architect of the enormous economic "bubble" that has burst globally. No longer is he revered as a "potentate." His reputation is in tatters. Giulio Tremonti, Italy’s Minister of Economy and Finance, has said: "Greenspan was considered a master. Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most." That speaks volumes.
Greenspan let things get out of control, and the prices of U.S. homes rose to stratospheric levels. Americans and their counterparts abroad borrowed like drunken sailors because of their newfound wealth and net worths, and no one believed that the party would end. While borrowers were told to read the fine print about the risks of adjustable-rate mortgages and the like, few people worried about the future
