This post is part of our Money Face-Offs feature. Let us know who you think comes out ahead in this head-to-head match-up, and check out our other Money Face-Off posts.
You could make the argument that the Chairman of the Federal Reserve is the second most important man in the world. (On Sept. 18 the Fed is expected to cut interest rates to mitigate damage done by recent problems in credit markets). It is true, that when the Fed Chief talks, the WHOLE world listens -- and reacts -- so everyone was a bit apprehensive when long-running Fed Chairman Alan Greenspan finally stepped down last year to be replaced by Ben Bernanke.
While it is still way to early to try to compare the old with the new, there have been some signs that the "new kid on the block" is going to be taking a different route in his role as Fed Chief. Greenspan, aka the "Maestro," was viewed as a genius while in office, but as time has passed, week by week the Greenspan legacy seems to be eroding little by little. The general impression of the "Great Inflator" Greenspan has definitely shifted to where most people recognize that he was an instigator for inflation who was afraid to let the markets correct themselves to avoid forming bubbles.
It is also true that Greenspan managed to remain in control of the Federal Reserve for 18 long years (a record for the position), but the question really is how? How did Greenspan manage to remain in the seat of one of the most powerful positions in the country for such a long period? The answer to that question is that he pleases every president that he serves. How did Greenspan manage to do this? By dropping interest rates whenever any hint of trouble hit the market. Think back to 1998 when Greenspan cut rates three times after the collapse of Long Term Capital Management LP.
Now fast forward to 2007. The subprime mortgage meltdown has been causing a lot of unrest on Wall Street. The current Bernanke administration has been quoted several times as saying that the subprime problems would be contained, but it is quickly becoming obvious that this is not the case, and the ripple effect is spreading across the broader market. What would Greenspan have done at this point? One would have to think that if Greenspan were still in office now he would have already cut rates at least once, if not more during the 2007 year.
It's pretty simple if you really think about it. Most Americans base their views of the overall economy on one simple thing -- the stock market. Most people don't have the luxury of following all the economic news floating around out there, so the one thing that they are able to easily keep track of is the state of Wall Street. Presidents are aware of this, and so was Greenspan. He knew that when the market was showing signs of weakness all he would have to do was lower interest rates and things would look on the surface to have magically corrected themselves. This works to a point, but sooner or later this remedy will no longer work.
Bernanke is in the middle of his first such crisis. The mortgage market meltdown has been causing a lot of volatility on Wall Street, but stocks are still up so far on the year. The Dow has been lifted in the past week by expectations that the Fed will cut short-term rates by as much as a half percentage point at its Sept. 18 meeting. At this point, if Bernanke doesn't come through to save the day by cutting rates, the market reaction would no doubt be brutal.
It's up to you to decide which is better. Is the Greenspan method of cutting rates early to help the market the right choice? Or perhaps Bernanke's decision to wait is the better route to take. For now, I tend to lean toward the route that Bernanke is taking.
Vote in our poll for Ben Bernanke or Alan Greenspan, and let us know in the comments why your choice has the financial edge in this match-up. Also be sure to check out our other Money Face-Offs.
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Reader Comments (Page 1 of 1)
9-15-2007 @ 11:55PM
Michele said...
Sometime markets are not able to correct them selves without causing detriment to the economy. I think Greenspan's way of dealing with things from the hip and confronting them head on is the best way to handle this econemy. Bernacki is going to push the nation head first into a deppression. Make my words. Then you will see a domino effect like no other.
9-16-2007 @ 12:39AM
drew patterson said...
Solid economies cannot exist on frivolous overexpenditures by its people. And the Fed should not bail out this behavor. Without some degree of pain-irresponsible spending habits would never be curtailed. For all those who indulged in scandilous behavior I can only hope their pain runs deep and severe.
9-16-2007 @ 1:10AM
Paula Beck said...
Mr. Greenspan did what he had to do to keep our morale going. Our country had weathered some turmoil to say the least. Our spending confidence was down. He may have stimulated our economy with good intentions never knowing the "subprime criminals" where going to rob us of our good fortunes. The people that should be held accountable are the subprime criminals. I called them criminals because if you or I where to put anybody in this horrible situation we would be on some level of arbitration to say the least. Yet these poor people are losing their home, their credit, their livelyhood at the hands of these criminals who made plenty of money off of them. We put trust in these individuals who are not licensed and have nothing to lose. These lenders need to be held to a higher standard like the rest of us. I'm a realtor and I see what these idiots have done to rest of us, our business. Most of them don't have lost their job but that is still not punishment enough. As a realtor I know If did not perform my fidicuary duty to my client I risk loosing my license. These scum bags can go to work for another company and commit the same crime. So lets not point the finger at someone who is trying to help, lets blame it on those who are there to help themselves.
One Bad Apple Spoiles the Bunch.
In this case a lot of bad apples.
Paula Beck
spbeck@verizon.net
9-16-2007 @ 8:09AM
Dennis Kelley said...
How did Greenspan ever become such a revered personality and media darling? His mismanagement at the Fed with interest rates left us with a recession in the early '90's and then again in 2001. A complete idiot couldn't have missed the economic signals in late 1999 and early 2000. Its really too early to judge Bernanke - early signals are somewhat positive - but he certainly could not be any worse than Greenspan.
9-17-2007 @ 2:52PM
AnyGoodDeals said...
Greenspan did react to prevent crisis. Bernanke seems to be a little slow on the uptake. I'm not even convinced he'll lower them tomorrow. Actually, I think he won't lower them at all or maybe 1/4% not enough to make a dent. It's just too little too late, the housing market busted so now wallstreet will too. We're past the CPR point, it's in all markets and we're going down.
9-17-2007 @ 5:32PM
Micaiah2004 said...
Why shouldn't anyone believe Mr. Bubble. Mr. Bubble created the environment for these continual boom/bust bubble cycles...now we are faced with the biggest one yet....and Mr. Bubble eschews responsibility and accountability for them, only for cleaning up the mess afterwards???? Give me a break.
11-19-2007 @ 8:16PM
warren packard said...
Years ago the average age until death was 67 years of age. Today people can live to over 100 years of age. In order to end the financial crisis facing the whole world due to unethical lending practices of recent years that has caused the financial institutions to go under due to bad loans that can not be repaid, Instead of lending people money for thirty years for a home, just increase the number of years you can finance a home to fifty years. You can not retire until you are seventy years of age anyway. As time goes on and the economy improves many people with a fifty year home loan could pay it off early. Either way that would spur economic development as well as make it affordable for every American to purchase a home and end the housing problems facing us today.
11-19-2007 @ 8:29PM
warren packard said...
Any corporation or company involved in promoting a home loan using unethical lending practices that has led to the financial situation that we all now face should be liquidated and the money that is recovered should be used to pay back the people that hold the useless paper that they sold them.We should also send these people to prison as an example for future unethical lenders to learn a lesson from.
11-19-2007 @ 8:34PM
warren packard said...
Any person or corporation that bought numerous homes for profit during the last several years and sold them causing the inflated building boom that eventually led to todays monetary situation should be required to repay that unethical monetary gain to the lenders of bad paper.