I made the mistake of reading the Onion's coverage of the A-Rod scandal and then surfing over to this New York Times story. For a minute, I thought I was still at the Onion:
in a documentary to be shown Thursday night that he did not fully
understand the scope of the subprime mortgage market until well into
2005 and could not make sense of the complex derivative products
created out of mortgages.
The doddering ex-genius, now revealed to have feet of clay, and forced to be a punching bag for journalists desperate to identify a villain for dramatic purposes, found himself increasingly bewildered by the alphabet soup mix of CDO's, CMO's, CDS, Basel II, and synthetic swaps at the heart of the mortgage meltdown.
OK, I made up that second paragraph. But that first one, which is actually from the news report, does strike me as a bit over the top in the way that it's worded. He couldn't make sense of the products? A bit harsh. It's bad enough he kept interest rates so low for so long out of fear of a crippling deflation or worse beginning in 2001. We don't have to cast him as a buffoon, as well. He's got some interesting quotes in the article.
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The discussion is all about unintended consequences. As if we just regulated a little better, been a little smarter, we'd have seen these coming and averted them. Maybe they're more like unexpectable events. A history of unexpectable events might highlight the folly of so much macro tinkering and fiddling.
We've always known that Greenspan knows his Austrian trade cycle theory, and that he repeatedly had good things to say about Austrian economics.
The question has always been "what was he thinking"?
Now we know.
Mr. Greenspan said that if he had taken steps to prevent the crisis, the outcome would have been painful.
“We could have basically clamped down on the American economy, generated a 10 percent unemployment rate,” he said. “And I will guarantee we would not have had a housing boom, a stock market boom or indeed a particularly good economy either.”
Mr. Greenspan, we didn't have a good economy. We just thought we did.
But he IS a bit of a buffoon. If saving is how capital is generated, then why did he discourage saving ruthlessly his entire career? For the same reasons the political class discourages it now, because they are buffoons, unwilling to accept that up is up and down is down. They think they know better than nature how to "run" an economy. The very notion of running an economy is the height of arrogance and willful disregard for reality. I'm starting to think that economists in general are quite stupid, not unlike Medieval barbers bleeding their patients and discouraging them from bathing.
I’m in the weird space of actually defending the man not being a fan of his. We did have some fantastic economic expansion on his watch, which may have been pure coincidence/accident, as Russ would say.
He’s done nothing to help himself, and is evidently so terrified of his wife (Andrea Mitchell) that he’s lost all of his prized convoluted circumlocution smoke screen….
I read it as admission that the economy is too complex to be run by a governing body despite being directed by a man as knowledgeable as Greenspan.
Oh yeah, but the journalist TOTALLY understands the alphabet soup of derivatives. The journalist can barely tie his own shoes.
Greenspan is not a buffoon but the Fed is an organ of the state. An organ of a buffoon is going to act like a buffoon.
Greenspan IS a buffoon (Bernanke too, as he was there too)
-He's an "Austrian" (or semi-Austrian) and yet did what he did, kept rates low forever?
-Talked about "irrational exuberance" at Dow 6700, and then was a giggly (unsexy) cheerleader at Dow 10000-plus?
-Told Congress recently: I was "going along" with the will of Congress, and NOT necessarily doing what I wanted to do (i.e the Fed's independence is a total joke). That one takes the cake for me.
PS. And NO, NO ONE understands these infernal products, not Alan, not the Physics PhDs, not the idiot CEOs. Stop the delusion. If after all the madness, in Dec 2008, B-of-A owned crap from Merrill, that lost another $10-15 billion in weeks, then I can only conclude: no one has a clue, trade it on your OWN risk.
I was watching The Ascent of Money on PBS, and he had some interviews with Soros in it, and even Soros seemed to think those products were too complicated to risk his money on.
I think a larger part of the blame probably lies with Bear Sterns, who created these things, and some say packaged them in a way to make them seem better than they were (putting some good mortgages in with bad ones to raise the average). But then who knows