Comment by b40d-48b2-979e
8 hours ago
He also oversaw the economy for twenty years before one of the worst recessions in the world. He helped set the stage for multiple disasters with his policies, so I'd take his opinions with a grain of salt.
8 hours ago
He also oversaw the economy for twenty years before one of the worst recessions in the world. He helped set the stage for multiple disasters with his policies, so I'd take his opinions with a grain of salt.
By the same standard shouldn’t he also get credit for those 20 years of prosperity?
"He burned the house down, but for a while we were VERY warm and it was good."
You don't credit an arsonist with "keeping a homeless person warm" when they set a homeless person on fire...
Really?
I don't think anyone really holds him responsible for the dotnet crash of 2000 as that was a market issue and irrational exuberance issue and not a monetary one.
And 2008 was similar. The Fed doesn't control or have any responsibility for lower lender standards or ARM mortgages.
Congress was responsible for the GSE's that bought any mortgages and wrote insurance on those mortgages, so you can't blame the FED for that.
Wallstreet are their regulators were responsible for the securitization of mortgages that went bad in 2008, not the FED.
At worst you can say they had the wrong monetary policy but that's an opinion and not something that can be said as a fact.
Can you flesh out how you feel Greenspan is responsible for 2008?
He actively campaigned against any regulation of derivatives. There is an infamous lunch that he had with Brooksley Born (who was head of the Commodity Futures Trading Commission) in the late 1990s where she attempted to regulate them. The details of the meeting are fuzzy and none of the participants will go on the record to what was said, but the gist is that he said he would fight her tooth and nail. After massive lobbying from Greenspan, as well as Lawrence Summers, congress passed legislation prohibiting her agency from regulating derivatives. She resigned shortly after.
You don't think Greenspan had a major hand in the dot com crash? "In late 1999, the Federal Reserve under Greenspan flooded the financial system with unprecedented liquidity to ward off potential deflationary impacts and cash-hoarding caused by the Y2K bug panic. The Fed expanded the money supply at an annualized rate of 22% in the fourth quarter of 1999."
As for the Great Recession, taking the Fed Funds rate from 6.5% to 1.0% and holding it there for a year was the catalyst for driving everyone into the mortgage market looking for returns. And then did not regulate subprime lending or the shadow banking market:
"As the housing market boomed, subprime mortgage originations skyrocketed from 8.2% of all mortgages in 2003 to 23.5% in 2006. The Fed possessed the authority under the Home Ownership and Equity Protection Act (HOEPA) to crack down on predatory lending and loose underwriting standards but chose not to act aggressively."
"The Fed failed to properly monitor off-balance-sheet vehicles, investment bank leverage, and complex derivatives like mortgage-backed securities (MBS) and collateralized debt obligations (CDOs). Because these instruments developed outside traditional commercial banking oversight, a highly leveraged 'shadow banking' system grew completely unchecked under the Fed's watch."
So yeah, the Fed has its fingerprints all over the scene of the crime. Lots of blame to go around though..
> Can you flesh out how you feel Greenspan is responsible for 2008?
Greenspan felt Greenspan was responsible for 2008.
https://www.nytimes.com/2008/10/24/business/economy/24panel....
The chief criticism lies in the "Greenspan put"--the idea that the Fed would just never let asset prices fall, a policy which both bears his name and is noteworthy enough to have a detailed Wikipedia article on it.
There was a dot net crash too??
Greenspan actively advocated for more use of ARM mortgages for personal home buying, while in a position to have the best access to data and analysis on the growing risk of those mortgages. Whereas mere common sense and a knowledge of economic history would argue against widespread use of ARMs for individual home purchases. When the fed chair says “we need more ARMs” to a market using ARMs to prop up a growing bubble, that is as much or more responsibility as any other single person.
It was generally 20 years of growth and the 2008 banking crisis actually happened after he left.
Alan Greenspan acquired too much power and went out of his way to railroad regulators. It was a classic "absolute power corrupts absolutely" and his flooding the markets with dollar liquidity at every crisis completely destroyed any concepts of moral hazard, of which we are still living with the consequences to this day.
He set the stage for the financial crisis that started crumbling a year after he left the fed chair. It wasn't all his fault (politicians lost any spine and bankers any sense), but he was the conductor.
He was a believer in the idea that banks would never act against their own long term interests in order to make money quickly because that would be an existential crisis for the bank.
Shortly after he left a bank with over 150 years of history collapsed due to exactly that sort of mismanagement, triggering a crisis for the entire banking sector.
And when production for a system I built burns down the month after I leave my job, the next guy they hire was actually the culprit! Greenspan was seen as responsible for the dot-com bust as well which was solidly in the center of his tenure.
The new IT manager walks into his office. He sits down and goes through his desk and finds three envelopes with the numbers 1, 2, and 3 on them with the attached letter:
A short few months later there was a significant production outage. Things wouldn't work and management was getting angry. After a long day of angry meetings he went to his desk and opened the first letter. It read "Blame it on your predecessor."
The next day in the meetings he blamed it on his predecessor and told of all the things that weren't done right... routine patching left undone, documentation in disarray. Upper management grumbled but agreed to give him the time to fix it.
Two years later there was another outage. This one went on for a day or two and management was once again getting angry about things and so he went to his desk and pulled out the second letter. "Blame it on the hardware."
With that, he went in pointing out that they were years behind on keeping the hardware itself up to date. Upper management grumbled again but agreed to a budget that allowed him to update the hardware.
For a while, everything was smooth and then it hit... another outage. He went to his desk and opened the third letter. "Prepare three envelopes."
There was a stimulus check that went out around that time. I felt it insane that I was receiving a check when nobody in my life was negatively impacted, the economy didn’t seem hurt (no more then when you’re up then down at a blackjack table), it was just a rebalancing of people’s portfolios values. Turns out that started the wave of completely untargeted stimulus/aide that would come at every economic faltering. I wish we would at least try to identify who is in need during these times. It drives me crazy when I would see the lines at Gucci and LV type stores backed up every week a Covid check went out.
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The dot-com bust produced an EXTREMELY mild recession (so mild that it was often misattributed to 9/11, which occurred when it was almost over.
OTOH, there was a lot of pain iny the subsequent expansion leading up to the 2008 , but that was all the fault of fiscal (eepecially tax) policy of the Bush Administration and thei Congressional allies, not Fed monetary policy. While Greenspan clearly ideologically supported the people doing that, it wasn't him and the Fed causing the problems.
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I think that this was relatively not known as a major risk far in advance otherwise more traders would have gotten rich. Michael Burry only started to short the market in late 2005, four months before Greenspan's term ended.
It is hard to ask Greenspan to have super natural powers of foresight beyond just about everyone else.
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