Garrison on Greenspan

Here’s a letter that I sent a few days ago to the Wall Street Journal:

To the Editor:

Alan
Greenspan now blames deregulation for today’s financial turmoil
("G reenspan Admits Error to Hostile House Panel," October 24). Whatever
deregulation there was, and whatever its merits or demerits, there is
one crucial financial instrument – dollars – that throughout was
supplied by an utterly unjustifiable state monopoly – the
Fed. Unfortunately, this decidedly unfree-market arrangement draws
little attention.

Skepticism is advisable when the former head
of a government-created and protected monopoly blames the
market for using that monopoly’s output unwisely. Would the demand for
mortgage-backed securities have been as frothy as it was if Mr.
Greenspan’s Fed had not created so much new money? Would the demand
for owner-occupied housing itself have been so intense? Because money
plays a common and vital role in all of these transactions – and
because Mr. Greenspan’s Fed kept pumping dollars into the economy with
no way to know
what the ‘correct’ supply is – you’ll pardon my inability to give
credence to Mr. Greenspan’s latest pronouncements.