Greenspan 'Reputation Tarnishment' Tour Continues
Alan Greenspan seems to be hellbent on destroying what little reputation he has left.
Over the past few years, the man formerly known as The Maestro has been slowly revealed as the grand architect of a Fed era which will forever be known for easy money and non regulation.
Thus, the inflationary spiral we are presently enjoying, with $100+ Oil and $5 milk, is only the first half of his legacy. The second part is the enormous credit crisis/housing debacle directily attributable to his malfeasance. Greenspan's ideological refusal to allow the Fed to fulfill its role of Banking System Regulator is what is directly the root cause of many of the conflagrations we are dealing with today -- from housing to credit to derivatives to the demise of Bear Stearns.
Here comes the fun part: The man that helped bring about the Housing crisis is now saying its almost over. Never mind the historic inventory overhang, accelerating foreclosures, and all of the price metrics that reveal Houses remain way too expensive. According to Easy Al, the end of the problem will soon be here:
"Former Federal Reserve Chairman Alan Greenspan said the drop in U.S. home prices will probably end "well before'' early next year as the number of houses on the market diminishes, aiding an economic rebound.
"It will not be until early 2009 that we will get close to having eliminated most of this'' home inventory, Greenspan told a conference in Tokyo today sponsored by Deutsche Bank AG and co-hosted by Bloomberg LP. "But it is very likely that home prices will stabilize well before that.''
Greenspan added that the extent of damage stemming from the collapse of the subprime-mortgage market won't be known for months. He described the credit crisis as the worst in 50 years, echoing the assessment of International Monetary Fund economists."
That's kinda like Mrs. O'Leary's cow telling you that the fire is almost over. If he is proven to be wrong about this also -- and I think he will be -- that should be the final nail in the coffin of his reputation.
>
UPDATE: April 8, 2008 9:14am
When I wrote this up early this morning, I had not yet seen the front page of the WSJ:
His Legacy Tarnished, Greenspan Goes on Defensive http://online.wsj.com/article/SB120760341392296107.html
Video after the jump.
>
Previously:
Free Lunch: Myths of the Greenspan Era (January 2006) http://bigpicture.typepad.com/comments/2006/01/free_lunch_myth.html
Source:
Greenspan Says U.S. Home Prices May Stabilize in 2008
Scott Lanman and Lily Nonomiya
Bloomberg, April 8 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aK6fhJY95tPg&
>
Greg Ip on Greenspan
Tuesday, April 08, 2008 | 06:49 AM | Permalink
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I think there is evidence that house prices in Florida have found at least a plateau, if not a bottom. When a house on the West coast drops about 30 - 40% from its peak, it sells within a few weeks.
There are a lot of buyers willing to buy at this level, me included. I just bought a foreclosed house in Sarasota for about a 50% drop from its peak.
Posted by: Sailorman | Apr 8, 2008 7:13:02 AM
of course this is an unpopular set of ideas ...but I think blaming Greenspan is silly at best ...at the time the country was facing deflation and the affects of 911 and expecting more attacks...the war and a Federal govt spending gone wild has much more to do with price inflation as well as crazy ideas like ethanol...
Posted by: brasil | Apr 8, 2008 7:23:38 AM
I wasn't aware that there were any nails left.
Econolicious
Posted by: ECONOMISTA NON GRATA | Apr 8, 2008 7:29:28 AM
Unbelievable for Greenspan to make those comments.
It now appears that he is towing the party line. Does he not realize that the bust part of the boom-bust cycle can take upwards of 5 years or even longer to unwind?
I think the final nail of his coffin will be in place by this time next year.
Posted by: blin | Apr 8, 2008 7:33:32 AM
How large is Deutsche Bank exposure in the US mortgage loans and derivatives?
I guess we may see more of it this year (BNP? Barclays?,Lehman?,Goldman?,JP Morgan?) Meanwhile it is always supportive to have Greenspan as an ambassador of the housing market
Posted by: Philippe | Apr 8, 2008 7:43:51 AM
Greenspan is and always was a charlatan....
Posted by: grumpyoldvet | Apr 8, 2008 7:43:59 AM
....He described the credit crisis as the worst in 50 years...
So what happened in 1958?
Or is it that he just can't bring himself to say "...the worst in 75 years"?
2008, take away 75 years, was 1933.
Oops, that almost brings in the "D" word.
Posted by: Neal | Apr 8, 2008 7:48:15 AM
I guess I am wondering what the next Act will consist of.
Now that the markets are breast-feeding off of the Fed, I don't think the word has gotten around to all of the big players yet whether the markets are going to try to push upwards or roll-over from here.
It seems to be in a holding pattern until everyone has received their program guide. It's like OK....., now what?
Posted by: BG | Apr 8, 2008 7:53:02 AM
There was always a lack of confidence in "free markets" that needed to be goosed with free money.
And the contradiction came home to roost.
They forgot "moderation in all things."
Posted by: odograph | Apr 8, 2008 7:59:15 AM
WOW, and to think Greenspan just endorsed McCain who to get elected has bought into the cutting taxes without addressing the spending side.
You really can't separate out Greenspan the supporter of irresponsible tax cuts, without addressing spending and the resulting deficits, from the negative real interest rates and easy money and the avoidance of all banking regulation. After all Greenspan is a huge Ann Rand fan, don't ask me how he rationalized his leadership of the FED and his true beliefs.
So you have Greenspan in the middle of monetary irresponsibility (negative real interest rates, lots of liquidity and regulation is a dirty word) and one is fiscal irresponsibility (doubling of the national debt in 8 years). Both has put this country at risk and it is probably impossible to separate the two as to which is the biggest driver. But Greenspan was in the middle of all of the something-for-nothing thinking that got the US into this economic burnt stew.
His legacy is fixed right there with Bush and now McCain is on the band wagon or is it the Titanic.
Posted by: farmera1 | Apr 8, 2008 8:01:04 AM
I am also wondering if the consensus in October is for a change/majority in Party for the Senate & White House, will the markets be trashed just to make the transition all the more difficult.
Maybe I should rephrase that and ask, can the markets hold together until the change in DC takes place? Without the PPT, only God knows where we would be right this moment.
Posted by: BG | Apr 8, 2008 8:03:55 AM
The irony is his major contribution to thought is to clean up bubbles afterward... and now he's trying to clean up his mess with a few sophistic strokes of the word processor.
The premise of his argument in the FT is that he's a "free market" guy and if you think he's to blame, than you're not.
The idea that the Federal Reserve is a "free market" mechanism is ludicrous. It's a stabliser. The USD is literally their debt. The role of Fed chairman is to protect people from themselves. Human beings are trend-following, unable to spot value, greedy, and fearful. The Fed is a government construct designed to oppose these human instincts.
Posted by: VennData | Apr 8, 2008 8:12:57 AM
I wonder: HOW ARE WE SUPPOSED TO SELL OFF INVENTORY WHEN WE ARE JUST NOW STARTING THE RECESSION, JOBS ARE BEING LOST, AND AT THE SAME TIME LENDING IS BEING TIGHTENED AND RATES RISING?
Did you hear about WaMu exiting wholesale mortgage business? Fewer and fewer players are in the lending industry, and the recession itself + tighter lending can not possibly help inventory issues.
Posted by: UrbanDigs | Apr 8, 2008 8:37:36 AM
Greenspan is the Arthur Burns of our time. The maestro nickname is only a result of a popular media that has no clue about the economy and operates in soundbites.
Posted by: Florida | Apr 8, 2008 8:52:51 AM
imo the dream economy has suffered a huge blow ... the masses need the ability to get up & get going ... because of events that wreck the economy and life, ie job shutdowns, natural disasters, local crime
>music in hard drives / not on shelves
>blow up furniture, fold out tables, screw together shelves & desks
>books in libraries, videos in rental stores
>food in restaurants, and freezer to the microwave
>vehicle depends on training ... hybrid compact with trailer hitch for country ... rental & bicycle carrier for urban
I think this latest storm will have years of lasting effects on acquiring assets and just where is a trustworthy place to put a retirement nestegg.
Posted by: Greg0658 | Apr 8, 2008 9:04:48 AM
I fear that by scapegoating Greenspan we'll miss some of the larger issues at work. Here's one: the President decided to spend a LOT of money with no mandate to do so (e.g., if everyone understood how the tax cuts were to be distributed, a popular vote would have been against them; and let's not bring up that other huge embarassing expense). The Fed allowed him to do this by loaning the money to the US government. Now they will transfer the costs to the rest of us, not by raising taxes--that would be too obvious--but rather by diluting the value of our currency.
Why is this possible in the first place? Certainly "the people" had no hand whatsoever in this arrangement.
Posted by: Egg | Apr 8, 2008 9:09:39 AM
The use of reassuring words like "Maestro" by the media is intended to put the public at ease while the markets do their dealings.
Very few things occur by co-incidence. Contrary to the thinking of many observers, most are well thought-out by the enablers far, far in advance.
We are sheep. Our only defense is keeping our eyes and ears open at all times. Deception is an art that in its best/worst use goes undetected for years.
Posted by: BG | Apr 8, 2008 9:14:37 AM
The guy no longer deserves a comment. He's not qualified to be a ticket taker at Disney World.
Posted by: Ross | Apr 8, 2008 9:25:40 AM
further ... to get political on your ars
what if .. why can't the masses consider that maybe our kings & generals are in a 21st century transformation
>destroy social programs and SSI
>train the masses to depend on themselves*
without destruction the programs need a fixup and done right enrich
reminds me of the scene in "The Hebrew Hammer" (in bed) "you gave me your disease" (? religion, tattoo, STD, desires ?)
*without land the masses can't fend without the corporatism
reference:
union busting via first moving south then globalization
Posted by: Greg0658 | Apr 8, 2008 9:30:20 AM
IS that comment in the capacity of Bill Gross' pimp or his role as a shill for the hedge fund industry?? Possible that no one is stumping up the bling to hear him say how it's none of his fault....
What a crock.....
Ciao
MS
Posted by: michael schumacher | Apr 8, 2008 9:37:35 AM
Mr. Greenspan has pursued a flawed, asymmetric monetary policy for so long that he believes his own lies.
1) Can’t do anything when the bubble market is going up. Bail it out on the way down.
2) When house prices were going up, it did not matter for inflation (they are investment assets not consumable). When they are going down, it is deflationary. Ditto for stocks.
3) Globalization’s deflationary effects matter more for domestic inflation when US economy is overheating. Global inflationary forces don’t matter when US growth is going down - the slack in the economy will take care of inflation.
and more….
Regulation, prices, asset prices, savings rates, external deficits. You name it. THis man has bent economics to suit his bubble inflating policies. Best central banker ever you say?
Posted by: zao | Apr 8, 2008 9:48:58 AM
I always thought it was strange and irresponsible for the Fed to greatly increase the money supply to combat the "potential" problems of Y2K. Basically the Fed flooded the system with money on a very poor guess that a major economic dislocation was in the offing. So much of the $$$s went directly into the Nasdaq 100 in late '99 and early 2000 greatly contributing to the bubble.
On another subject; let's keep the pessimism at a high level - makes the ultimate bottom that much closer.
Posted by: Steve in TN | Apr 8, 2008 9:54:47 AM
Greenspan: Release your NYU grad thesis!!!
Posted by: Marty | Apr 8, 2008 9:59:18 AM
The fed is not responsible for inflation.
The government that borrows huge amounts which requires the fed to underwrite it is.
At the end of the day, the fed is appointed by the President. If the fed doesn't go along with the president, they will simply be replaced / out voted.
I will agree that the fed missed the subprime crisis .. however, too much regulation is often worse than too little. It's quite possible they could have regulated and caused a *much* bigger mess than what we already have now.
Hindsight is 20/20. It's so obvious that there should have been something to put the brakes on this ... now.
Posted by: blaze | Apr 8, 2008 10:02:02 AM
Sailorman, you may be right that the clearing price for houses on the Gulf Coast of Florida is 35-40% below the peak. But it's a little misleading to say that "house prices in Florida have found at least a plateau". Prices have not generally fallen that far yet. The Case-Shiller index for Tampa is off 18.5%. The Florida Association of Realtors data for Tampa-St. Pete-Clearwater shows the median price off 25.3%. So while the occasional deal at 40% off may be reflect fair, post-bubble, responsible-lending pricing, the market as a whole is not there yet. Buyers must still beware.
Posted by: TKL | Apr 8, 2008 10:31:26 AM
