On Friday, NPR aired an interview with Alan Greenspan where he said that the disastrous mortgage bubble was born from a virgin birth, he could do nothing to stop it, and he was definitely not the father of the unfolding catastrophe.
Asked if the Fed could have prevented, or eased, the U.S. housing bubble, he said, "There's only one thing we could have done — cutting off short-term credit. But that would have broken the back of the economy and brought the housing boom down."
Short of raising interest rates dramatically, "the evidence is very clear that there was nothing that any central bank could have done, or tried to do."
He said the housing meltdown was "inevitable in one sense: When you get a type of euphoria building in an economy, you're dealing with the innate aspects of human nature. And I've watched bubbles inflate and deflate for 60 years. I'm pretty much convinced that we will never be able, by monetary or fiscal policy or government actions, short of disabling the economy, (to undermine) those bubbles.
"Eventually, this has to defuse itself," he said.
Yet, it isn't too hard to find ways that Alan Greenspan helped create the very bubble that he now says was simply caused by something in the atmosphere.
Back in 2004, Alan Greenspan helped start the housing bubble. Here's a post I wrote in March of 2004 about the extremely unstable ground upon which the Bush economy was being built.
Yet, putting aside the anemic job growth record right now, the economy is growing increasingly unstable and liable to a collapse that could rival the savings and loan bailout in papa Bush's term. The problem is the amount of personal debt Americans hold, especially in their homes and how much that debt is based on adjustable-rate mortgages. Greenspan testified before Congress a few weeks ago saying that consumer debt wasn't too big of a concern because so many people had gotten to refinance or buy their home with these low rates. Yet, as Atrios pointed out, Fed Chief Greenspan is speaking with a forked tongue because he's urging people to go for adjustable-rate mortgages even while he worries about the financial stability of the Fanny Mae and Freddie Mac. He acts like the low interest rates are here to stay. Meanwhile, others in the Federal Reserve are calling to increase the rates. Seeing how Greenspan is suggesting that we need to default on the Social Security trust fund, I worry that he is just setting up the "lucky duckies" for another massive ripoff.
Let's look at the prediction from Bill Fleckinstein from MSN money in March 2004:
So the most irresponsible central banker in the history of the world created the biggest bubble in the history of the world, which had disastrous consequences for the stock market and the economy. In order to ameliorate that, he has created bubble-like conditions and absurd financing schemes in real estate. Meanwhile, we've seen an enormous concentration of risk develop inside the financial system: We are down to just a handful of big banks and government-sponsored entities that are using his other favorite toy, derivatives, to theoretically manage away all their risks.
Saturday, NPR's website featured another story about the FED deciding to issue some new regulations that would stop "abusive lending practices." Precisely the same practices that were sponsored and allowed to fester under Alan Greenspan.
Paul Krugman recently featured the comments from an influential French economist who described Alan Greenspan as an arsonist who starts a fire and then rides onto the scene to be the rescuing firefighter.
When you look at the horrific mess we are facing on the economic front, we should all be cursing Alan Greenspan's name and hold him accountable for putting us into this mess. Greenspan should be known as the man who destroyed the lives of some 10s of millions of Americans. That is his legacy.