Greenspan the Great
How did we end up in this mess of an economic meltdown?
The answer is pretty simple: too much cheap credit, and no regulation of derivatives.
Probably more than any other individual, Alan Greenspan is to blame for both. He was Clinton’s and then Bush’s wizzard Fed Reserve Chairman, who waved the wand of reduced interest rates to keep the economic pump primed. Basically, Greenspan was the rich daddy who kept replacing junior’s maxed out credit card with a new one, but never really paid off the old ones.
And hence we are where we are.
Today, a mea culpa. Reports the New York Times:
Facing a firing line of questions from Washington lawmakers, Alan Greenspan, the former Federal Reserve chairman once considered the infallible maestro of the financial system, admitted on Thursday that he “made a mistake” in trusting that free markets could regulate themselves without government oversight.
A fervent proponent of deregulation during his 18-year tenure at the Fed’s helm, Mr. Greenspan has faced mounting criticism this year for having refused to consider cracking down on credit derivatives, an unchecked market whose excesses partly led to the current financial crisis.
Although he defended the use of derivatives in general, Mr. Greenspan, who left office in 2006, told members of the House Committee of Government Oversight and Reform that he was “partially” wrong in not having tried to regulate the market for credit-default swaps.
Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said.
“Absolutely, precisely,” Mr. Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
It’s easy to be popular when you keep handing out money. Not so easy to be popular once you’ve run out, when you have to admit you bankrupted yourself, and everyone’s been expecting more.