Friday, October 24, 2008

More on "Easy Al" Greenspan

From a newsletter:

According to Greenspan's tortured explanations, the unregulated finance companies (that he repeatedly refused to regulate), combined with the unbridled issuance of adjustable-rate mortgages (that he publicly extolled), combined with the astronomical growth of complex derivatives (that he enthusiastically encouraged), combined with the lack of governmental oversight and control (that he actively thwarted), had NOTHING to do with the resulting financial disaster.

No, these influences did not cause the problem. And neither - we are led to infer - did the former Fed Chairman's career-long penchant for nurturing asset bubbles, cause the problem. The real culprits, Greenspan argued, were all those bond investors who were demanding high-yield securities...

Uh-huh. But there's an anwer for that, too:

...the inquiring mind would want to inquire, "Why were bond investors seeking high yields?" Hmmm...could part of the reason have been that Greenspan was continuously suppressing short-term interest rates, even when economic conditions did not seem to require them. "Greenspan is maintaining emergency interest rates without an emergency," James Grant explained at the time.

Grant is, arguably, THE authority on rates.

Now, of course, it wasn't just "Easy Al." But $Umpty-Zillions in infused cash over the years has to go somewhere, folks.

We might mention Congress and two lousy Presidents, not to mention the biggest problem: the "gimme" population which demanded bigger houses, granite countertops, and two Caddies in the drive...

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