The Wall Street Journal is trying to gin up some pity for Alan Greenspan. Apparently his feelings are hurt because people are blaming him for the current economic mess. They criticize him for keeping interest rates at 1% for too long, praising adjustable rate mortgages, and maintaining lax regulatory oversight. But the Journal missed the two key flaws in Greenspan's record -- his love of securitization and his critical support of Bush's $1.3 trillion worth of tax cuts.
Meanwhile Greenspan is raking in enormous bucks. The Journal reports: "His memoir has sold about a million copies. He collects six-figure fees to answer questions for audiences, typically assemblies of financial professionals. He has signed consulting contracts with three firms, including Germany's biggest bank, Deutsche Bank AG; the world's biggest bond-fund manager, Pacific Investment Management Co.; and Paulson & Co., a hedge fund that made billions betting against housing."
In a 2002 speech referring to credit derivatives, he said financial instruments such as credit default swaps, collateralized debt obligations (CDOs) and credit-linked notes have also helped make the economy shock-resistant. "Such instruments appear to have effectively spread losses from defaults by Enron, Global Crossing, Railtrack, WorldCom and Swissair in recent months from financial institutions with large short-term leverage to insurance firms, pension funds, or others with diffuse long-term liabilities or no liabilities at all,"
Greenspan was completely wrong about CDOs. Those instruments could be responsible for $265 billion worth of bank write-offs. And Greenspan's support of tax cuts have contributed to enormous government budget deficits -- including a 2008 deficit of $410 billion -- and a record $9.4 trillion worth of borrowing which have slashed the value of the dollar by 65% since early 2001.
Greenspan is free to feel sorry for himself but at least he is making plenty of money to soothe his hurt feelings. But many of those who have to live in the economy he designed are not as fortunate.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
4-08-2008 @ 3:24PM
DAvid in austin said...
Yes, I wonder when all of these "experts" are going to get the FACT that you can't give tax cuts away and spend, Spend, SPEND. Under Bush(s) and Reagans watches, 70% of the ENTIRE US debt, since 1776 has been due to their free-for-all tax and spend policies. I'm a Dem, but where are those fiscally responsible Republicans we always keep hearing about....another fantasy - like the "benefit" of those tax cuts????
4-08-2008 @ 4:43PM
william lindblad said...
I have maintained for a long period that there will be plenty of blame to go around. While I don't exclude Alan, I don't single him out either. The Fed was empowered to control predatory lending - been so since 1996. Pretty obvious, that they did not do a damn thing. Also, I do not recall ANYONE with any form of authority, nor do I recall any of our private financial guru's issuing a statement of warning. All of the warnings were given after the fact. Hindsight never fails - always 100%. Mr. G. is a data freak, he does not go out in the field. On the other hand the people we elect to Congress do. They all go home to their district, at least once in a while, to remain in office. I guess they were all blind or at least turned the "blind eye" to all the building excess. Personally, I hold Barney Franks and committee as most culpable parties. They are a finance committee and have legislative power. They could have put the brakes on anything - they didn't - worse yet, they had no idea anything was wrong. I am just one of many jackasses which comprise the general public and we all knew this was gonna blow - 2 years ago.
Throw another corn cob on the fire - the government says it's gonna get better.
4-08-2008 @ 11:05PM
Miguel said...
Even these authentic bulls were able to see one of Greenspan's bubbles in 1999 before it popped...
http://www.fiendbear.com/guestpg1.htm
http://www.fiendbear.com/guestpg2.htm
Why wasn't Greenspan seeing things that were obvious even to these male bovines?