Greenspan ‘Reputation Tarnishment’ Tour Continues

Alan Greenspan seems to be hellbent on destroying what little reputation he has left.

Over the past few years, the man formerly known as The Maestro has been slowly revealed as the grand architect of a Fed era which will forever be known for easy money and non regulation.

Thus, the inflationary spiral we are presently enjoying, with $100+ Oil and $5 milk, is only the first half of his legacy. The second part is the enormous credit crisis/housing debacle directily attributable to his malfeasance. Greenspan’s ideological refusal to allow the Fed to fulfill its role of Banking System Regulator is what is directly the root cause of many of the conflagrations we are dealing with today — from housing to credit to derivatives to the demise of Bear Stearns.

Here comes the fun part: The man that helped bring about the Housing crisis is now saying its almost over. Never mind the historic inventory overhang, accelerating foreclosures, and all of the price metrics that reveal Houses remain way too expensive. According to Easy Al, the end of the problem will soon be here:

"Former Federal Reserve Chairman Alan Greenspan said the drop in U.S. home prices will probably end "well before” early next year as the number of houses on the market diminishes, aiding an economic rebound.

"It will not be until early 2009 that we will get close to having eliminated most of this” home inventory, Greenspan told a conference in Tokyo today sponsored by Deutsche Bank AG and co-hosted by Bloomberg LP. "But it is very likely that home prices will stabilize well before that.”

Greenspan added that the extent of damage stemming from the collapse of the subprime-mortgage market won’t be known for months. He described the credit crisis as the worst in 50 years, echoing the assessment of International Monetary Fund economists."

That’s kinda like Mrs. O’Leary’s cow telling you that the fire is almost over. If he is proven to be wrong about this also — and I think he will be — that should be the final nail in the coffin of his reputation.   


UPDATE: April 8, 2008 9:14am

When I wrote this up early this morning, I had not yet seen the front page of the WSJ:

His Legacy Tarnished, Greenspan Goes on Defensive

Video after the jump.


Free Lunch: Myths of the Greenspan Era (January 2006)

Greenspan Says U.S. Home Prices May Stabilize in 2008
Scott Lanman and Lily Nonomiya
Bloomberg, April 8 2008


Greg Ip on Greenspan

What's been said:

Discussions found on the web:
  1. Sailorman commented on Apr 8

    I think there is evidence that house prices in Florida have found at least a plateau, if not a bottom. When a house on the West coast drops about 30 – 40% from its peak, it sells within a few weeks.

    There are a lot of buyers willing to buy at this level, me included. I just bought a foreclosed house in Sarasota for about a 50% drop from its peak.

  2. brasil commented on Apr 8

    of course this is an unpopular set of ideas …but I think blaming Greenspan is silly at best …at the time the country was facing deflation and the affects of 911 and expecting more attacks…the war and a Federal govt spending gone wild has much more to do with price inflation as well as crazy ideas like ethanol…

  3. blin commented on Apr 8

    Unbelievable for Greenspan to make those comments.

    It now appears that he is towing the party line. Does he not realize that the bust part of the boom-bust cycle can take upwards of 5 years or even longer to unwind?

    I think the final nail of his coffin will be in place by this time next year.

  4. Philippe commented on Apr 8

    How large is Deutsche Bank exposure in the US mortgage loans and derivatives?
    I guess we may see more of it this year (BNP? Barclays?,Lehman?,Goldman?,JP Morgan?) Meanwhile it is always supportive to have Greenspan as an ambassador of the housing market

  5. grumpyoldvet commented on Apr 8

    Greenspan is and always was a charlatan….

  6. Neal commented on Apr 8

    ….He described the credit crisis as the worst in 50 years…

    So what happened in 1958?

    Or is it that he just can’t bring himself to say “…the worst in 75 years”?

    2008, take away 75 years, was 1933.

    Oops, that almost brings in the “D” word.

  7. BG commented on Apr 8

    I guess I am wondering what the next Act will consist of.

    Now that the markets are breast-feeding off of the Fed, I don’t think the word has gotten around to all of the big players yet whether the markets are going to try to push upwards or roll-over from here.

    It seems to be in a holding pattern until everyone has received their program guide. It’s like OK….., now what?

  8. odograph commented on Apr 8

    There was always a lack of confidence in “free markets” that needed to be goosed with free money.

    And the contradiction came home to roost.

    They forgot “moderation in all things.”

  9. farmera1 commented on Apr 8

    WOW, and to think Greenspan just endorsed McCain who to get elected has bought into the cutting taxes without addressing the spending side.

    You really can’t separate out Greenspan the supporter of irresponsible tax cuts, without addressing spending and the resulting deficits, from the negative real interest rates and easy money and the avoidance of all banking regulation. After all Greenspan is a huge Ann Rand fan, don’t ask me how he rationalized his leadership of the FED and his true beliefs.

    So you have Greenspan in the middle of monetary irresponsibility (negative real interest rates, lots of liquidity and regulation is a dirty word) and one is fiscal irresponsibility (doubling of the national debt in 8 years). Both has put this country at risk and it is probably impossible to separate the two as to which is the biggest driver. But Greenspan was in the middle of all of the something-for-nothing thinking that got the US into this economic burnt stew.

    His legacy is fixed right there with Bush and now McCain is on the band wagon or is it the Titanic.

  10. BG commented on Apr 8

    I am also wondering if the consensus in October is for a change/majority in Party for the Senate & White House, will the markets be trashed just to make the transition all the more difficult.

    Maybe I should rephrase that and ask, can the markets hold together until the change in DC takes place? Without the PPT, only God knows where we would be right this moment.

  11. VennData commented on Apr 8

    The irony is his major contribution to thought is to clean up bubbles afterward… and now he’s trying to clean up his mess with a few sophistic strokes of the word processor.

    The premise of his argument in the FT is that he’s a “free market” guy and if you think he’s to blame, than you’re not.

    The idea that the Federal Reserve is a “free market” mechanism is ludicrous. It’s a stabliser. The USD is literally their debt. The role of Fed chairman is to protect people from themselves. Human beings are trend-following, unable to spot value, greedy, and fearful. The Fed is a government construct designed to oppose these human instincts.

  12. UrbanDigs commented on Apr 8


    Did you hear about WaMu exiting wholesale mortgage business? Fewer and fewer players are in the lending industry, and the recession itself + tighter lending can not possibly help inventory issues.

  13. Florida commented on Apr 8

    Greenspan is the Arthur Burns of our time. The maestro nickname is only a result of a popular media that has no clue about the economy and operates in soundbites.

  14. Greg0658 commented on Apr 8

    imo the dream economy has suffered a huge blow … the masses need the ability to get up & get going … because of events that wreck the economy and life, ie job shutdowns, natural disasters, local crime

    >music in hard drives / not on shelves
    >blow up furniture, fold out tables, screw together shelves & desks
    >books in libraries, videos in rental stores
    >food in restaurants, and freezer to the microwave
    >vehicle depends on training … hybrid compact with trailer hitch for country … rental & bicycle carrier for urban

    I think this latest storm will have years of lasting effects on acquiring assets and just where is a trustworthy place to put a retirement nestegg.

  15. Egg commented on Apr 8

    I fear that by scapegoating Greenspan we’ll miss some of the larger issues at work. Here’s one: the President decided to spend a LOT of money with no mandate to do so (e.g., if everyone understood how the tax cuts were to be distributed, a popular vote would have been against them; and let’s not bring up that other huge embarassing expense). The Fed allowed him to do this by loaning the money to the US government. Now they will transfer the costs to the rest of us, not by raising taxes–that would be too obvious–but rather by diluting the value of our currency.

    Why is this possible in the first place? Certainly “the people” had no hand whatsoever in this arrangement.

  16. BG commented on Apr 8

    The use of reassuring words like “Maestro” by the media is intended to put the public at ease while the markets do their dealings.

    Very few things occur by co-incidence. Contrary to the thinking of many observers, most are well thought-out by the enablers far, far in advance.

    We are sheep. Our only defense is keeping our eyes and ears open at all times. Deception is an art that in its best/worst use goes undetected for years.

  17. Ross commented on Apr 8

    The guy no longer deserves a comment. He’s not qualified to be a ticket taker at Disney World.

  18. Greg0658 commented on Apr 8

    further … to get political on your ars

    what if .. why can’t the masses consider that maybe our kings & generals are in a 21st century transformation

    >destroy social programs and SSI
    >train the masses to depend on themselves*

    without destruction the programs need a fixup and done right enrich

    reminds me of the scene in “The Hebrew Hammer” (in bed) “you gave me your disease” (? religion, tattoo, STD, desires ?)

    *without land the masses can’t fend without the corporatism

    union busting via first moving south then globalization

  19. michael schumacher commented on Apr 8

    IS that comment in the capacity of Bill Gross’ pimp or his role as a shill for the hedge fund industry?? Possible that no one is stumping up the bling to hear him say how it’s none of his fault….
    What a crock…..


  20. zao commented on Apr 8

    Mr. Greenspan has pursued a flawed, asymmetric monetary policy for so long that he believes his own lies.

    1) Can’t do anything when the bubble market is going up. Bail it out on the way down.
    2) When house prices were going up, it did not matter for inflation (they are investment assets not consumable). When they are going down, it is deflationary. Ditto for stocks.
    3) Globalization’s deflationary effects matter more for domestic inflation when US economy is overheating. Global inflationary forces don’t matter when US growth is going down – the slack in the economy will take care of inflation.
    and more….
    Regulation, prices, asset prices, savings rates, external deficits. You name it. THis man has bent economics to suit his bubble inflating policies. Best central banker ever you say?

  21. Steve in TN commented on Apr 8

    I always thought it was strange and irresponsible for the Fed to greatly increase the money supply to combat the “potential” problems of Y2K. Basically the Fed flooded the system with money on a very poor guess that a major economic dislocation was in the offing. So much of the $$$s went directly into the Nasdaq 100 in late ’99 and early 2000 greatly contributing to the bubble.

    On another subject; let’s keep the pessimism at a high level – makes the ultimate bottom that much closer.

  22. Marty commented on Apr 8

    Greenspan: Release your NYU grad thesis!!!

  23. blaze commented on Apr 8

    The fed is not responsible for inflation.

    The government that borrows huge amounts which requires the fed to underwrite it is.

    At the end of the day, the fed is appointed by the President. If the fed doesn’t go along with the president, they will simply be replaced / out voted.

    I will agree that the fed missed the subprime crisis .. however, too much regulation is often worse than too little. It’s quite possible they could have regulated and caused a *much* bigger mess than what we already have now.

    Hindsight is 20/20. It’s so obvious that there should have been something to put the brakes on this … now.

  24. TKL commented on Apr 8

    Sailorman, you may be right that the clearing price for houses on the Gulf Coast of Florida is 35-40% below the peak. But it’s a little misleading to say that “house prices in Florida have found at least a plateau”. Prices have not generally fallen that far yet. The Case-Shiller index for Tampa is off 18.5%. The Florida Association of Realtors data for Tampa-St. Pete-Clearwater shows the median price off 25.3%. So while the occasional deal at 40% off may be reflect fair, post-bubble, responsible-lending pricing, the market as a whole is not there yet. Buyers must still beware.

  25. wunsacon commented on Apr 8

    Blaze, what was hindsight to some was cause for alarm by others, including (just for example) states that tried doing something about dumb lending and were prevented by the federal government.

  26. edhopper commented on Apr 8

    You are wrong about the last nail thing. If the last 8 years have taught us anything, whether it’s Housing, Iraq, Tax Cuts or the Economy in General. It’s that those who are wrong over and over again, continue to get their voices respected and heard over those who were right in the first place. The Press will continue to listen to “The Maestro” and treat him like an elder statesman. And clueless souls like John McCain will continue to sit at his feet fo0r advice.

  27. TheGuru commented on Apr 8

    I think Al is about due to get his Depends changed.

  28. Alfred commented on Apr 8

    I respectfully disagree with you on that point. I hate to say but I think Greenspan’s libertarian approach is the right one when it comes to regulating markets.

    The current crises is not the result of lack of regulation but rather of a culture of bailing out Wall Street and the moral hazard issues that come with it. It is the result of an unsustainable expansion of counterparty risks made possible by abandoning sensible risk management. This is the legacy of Alan Greenspan. By accusing him of lack of regulation or keeping interest rates too low after the 2001 recession you let him off too easy.

    The real question we all should ask is: Why does the Fed as the only central bank in the world still have a dual mandate of price stability and optimal growth? The dual mandate compromises the independence of the Fed and the outcome of that can bee observed in the current credit crises, which may or may not (for this time) topple our financial system and our economies.

    The demise of Bear Sterns is probably the first bank in the history of capital markets that failed because of the sheer force of counterparty risks. It did not fail, as so many still believe, because of lack of capital or lack of liquidity.

  29. rexl commented on Apr 8

    edhopper is right and the continued quoting and reference for henry kissinger is proof. while he should be burning in hell he is still revered by the press.

  30. Tom F. commented on Apr 8

    You read that journal article and you get the feeling that the whole country is run by nothing but greedy bastards, pathological liars and fools. There’s no way in hell a nation can survive with that kind of infestation.

  31. DonKei commented on Apr 8

    Greenspan a free-marketer? In his imagination, perhaps. The fed chief is head of one of the most powerful government-sanctioned monopolies in the world–controlling the quantity supplied of money. Monopolies, especially ones that require the barrel of a gun for their continuance, aren’t generally thought of as free market creatures.

    Had the fed, or Greenspan’s protege, Bernanke, actually been free-market oriented, they would have allowed Bear Stearns to fail, and the markets to suffer the consequences of its excessive, leveraged risk-taking. That’s what free markets are about, and Bear’s failure would have gone miles to convince the next investment bank that perhaps 32x leverage is a bit risky.

    Both men, as happens eventually w/ virtually everyone in government service, are frauds. Anytime you hear their Orwellian applause of the efficiencies of the marketplace, taxpayers should immediately check their pocketbooks. It’s always fun to play free marketer w/ someone else’s money.

  32. BSNEATH commented on Apr 8

    Alfred, I respectfully must disagree with your comments.

    Greed is a very powerful emotion to leave to unregulated markets. The players are too tempted to get in, make a fast buck and leave the carnage for the market place to mop up.

    With respect to Greenspan, he is getting a bad rap for lowering interest rates. After the stock market bubble collapse, 911, anthrax, SARS, Enron, etc. etc., the economy was facing a significant threat of a depression, much like today.

    Where Greenspan failed, in my opinion, was in his libertarian approach towards regulation. He likely was acting politically to be consistent with the views of the Bush administration without understanding the potential magnitude of the issue.

    Had the mortgage markets been properly regulated, there would not have been no-doc, subprime, teaser-rate, interest only loans. It doesn’t take hindsight to realize that this set up was a disaster in waiting.

    Low interest rates, coupled with a properly regulated financial market, would have been the proper medicine for the economy given the risks at hand.

    Housing prices would not have risen unreasonably had homeowners and speculators been required to document their incomes, put in a minimum of 10% equity, use traditional mortgage loans, etc. Further the consumption bubble would not have gotten as far out of hand had home equity loans been regulated as well.

    It is typical blame mentality to say that low interest rates created this environment. In my opinion, it is a case of the greedy NYC investment bankers saying, “Its not my fault, Greenspan made me do it.” That is basically a lot of bull. What was perpetrated was wrong under any interest rate scenario. Hands off deregulation policies and the inherent human nature of greed are the culprits for the mess that we are in now.

    Blame should also be cast upon the liberals who mandated that banks make mortgage loans to individuals who were not prepared to accept the responsibility of home ownership.

    So now that I have offended libertarians, conservatives, liberals and investment bankers, I’ll push the send button.

  33. michael schumacher commented on Apr 8

    >>Blame should also be cast upon the liberals who mandated that banks make mortgage loans to individuals who were not prepared to accept the responsibility of home ownership.>>

    But let the banking industry skate??? of course…no one told them they had to leverage up these “bad loans” and then sell them all over the world.

    They don’t call it the “great unwind” because some loans were made to people who couldn’t afford the payment……..

    You probably believe the phrase “credit crunch” too. Substitute “insolvency” for that and you’ve got a good place to start.

    For the last time it’s not a credit issue it’s a solvency problem.


  34. DL commented on Apr 8

    I don’t think that Greenspan deserves all of the blame.
    I would agree that Greenspan probably had more power to mitigate the proliferation of subprime mortgages than any SINGLE person. But any member of Congress, or the administration, could have sounded the alarm, and they didn’t. Members of the financial services committee, or banking committee did know, or should have known what was going on. Barney Frank or Chuck Schumer, for example, could have easily sounded the alarm and got the debate going. In fact, in political terms, the U.S. Congress had FAR more power than Greenspan during the period 2002-2005 to put a stop to the proliferation of subprime mortgages. And even the financial journalists could have had an influence. (Most of them argued, even in August of 2007, that subprime wasn’t a problem).
    Greenspan may have had the authority to pull the policy levers. But as a result of their silence, key members of Congress and the administration deserve no less blame.

  35. Alfred commented on Apr 8


    I will agree with you that the role of the regulators in the current mortgage crises is questionable and needs to be examined. My point was that the criticism of A.G. should not focus on regulation and interest rates which misses the principal problem, which is the inherent instability in financial institutions due to ginormous counterparty risks. All attempts to nail Greenspan (save us from Greenspan doctrine) on the issues of regulation and interest rates will fail, because he has always the second mandate of optimal growth to fall back on. When Ron Paul asked Bernanke in his testimony before Congress, if the Fed still thinks that business cycles have an important role in the economy, Bernanke evaded a direct answer by evoking their dual mandate.

    By focusing on price stability alone the Fed would be really independent and watch out for the safety and soundness of the financial system, less with regulation but more with its real toolbox of money supply.

  36. MarkD commented on Apr 8

    enough greenspanery!!

  37. bumble commented on Apr 8

    >Blame should also be cast upon the liberals who mandated that banks make mortgage loans to individuals who were not prepared to accept the responsibility of home ownership.

    Show me where in the law it mandates that underwriting is illegal?

    Show me where in the law it mandates that NINA/SISA/NINJA loans should be made?

    Show me anyplace in the law – anywhere – that mandates that irresponsible lending practices are required.

    I’ll tell you the answer – nowhere in the law.

    All those things where done because those were the kind of deals which generated the largest commissions and kickbacks and bonuses.

    I know it, you know it, and anyone with a pulse knows it.

    So my real question – are you being paid to do this astroturfing? Why don’t you take it to

  38. Mark W commented on Apr 8

    maybe Easy Al is bucking for the NAR chief economist position?

  39. Eric Davis commented on Apr 8


    Through all his bullshit, doubletalk and rationalization. This is the most obvious super cycle 30 year trade…. Easy money= uncontrolled Inflation. After it cycling on us the third time, since the 30’s depression, one would think we would learn.

    But somehow Greenspan thinks he is exceptional, since he did what every other Weak minded, Tow the line, Federal bureaucrat wants….. Free Money… Cause how could that be bad… Except every thirty years.

    That Greenspan is one smart dude to not see that coming. Who could see a standard 30 year super-cycle coming.. when you are the intellectual Equivalent of a Kludge.

    Someone should write a book, “The fed Path Most Traveled” how to do what the markets and the Government wants into financial Destruction, and how to not learn from the past. By the Greenspan Fed.

    That job would be better filled by a computer. Cut rates by .5% for every 50K step down in jobs we get under 100K.
    Repeat until at 0% then increase .25 if jobs over 200K….. Then raise rates till Psudo-inflation is 2%.

    But if they didn’t do it that way, the bozos in the market and the government would be down there with pitchforks and torches.

    And like the idiots we are, here we go to play it all out again.

  40. Sherman McCoy commented on Apr 8

    I think you are viewing Greeenspan in the wrong way. He was the Fed chief for a while of course. But before then he was a financial industry CONSULTANT and active LIBERTARIAN. And now, after his stint as chairman, he’s gone back to that same role- the role that has always defined his professional life. Even in his book he represents himself in this way.

    He gets down into the muck. No doubt he will sometimes be wrong. Contrast his style to the much more professional Bernanke and Volcker.

    Viewing his entire professional life in this way, it seems like his job as Fed Chairman just gave him a bigger platform on which to be a larger-scale CONSULTANT and even-more-active LIBERTARIAN.

    Personally I admire him very much for that.

  41. BSNEATH commented on Apr 8

    “So my real question – are you being paid to do this astroturfing? Why don’t you take it to”

    Hey Bumble – chill out.

    btw, the CRA is a good place to start looking for mandates.

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