As I listened to Mr. Greenspan explain away the crisis as something that happens once in "99 years," I was extremely annoyed. Is this a way to excuse his apparent incompetence and that of other economists? As he spoke I could not help but say aloud, "words words words."
Last week President Obama joked in a press conference that "we are all economists now." As I write these words, I am fully aware that I am not an economist. But that does not mean that I lack common sense, neither does it stop me from being livid at those trained experts that are now addressing the crisis.
During the New York conference I heard the term "financially literate" to refer to economists. Can we really refer to those who brought us to this moment of international financial collapse as "financially literate?"
In an article, "Greenspan the Worst Fed Chief Ever," Bill Flickenstein has doubts about the ability and honesty of some economists. He says of Mr. Greenspan:
Even if any of his protestations were true (which I don't believe) and the Fed was afraid of damaging the economy, it has been granted specific tools to deal with periods of speculation. Among them: Regulation T, whereby margin requirements can be raised to reduce risk and change market psychology. (While raising margin requirements to even 100% may or may not have been sufficient to break the stock bubble, the Fed could have at least tried. If that failed, the Fed could then have tightened.) However, for Greenspan to pretend that all he could have done was to raise rates shows that either he doesn't know what the Fed's tools are (i.e., he's clueless) -- or he's not being truthful...Now, do you see why I, an avowed non-economist, would say "words words words?"
The Fed could also ask Congress to resuscitate the old Regulation X. Part of the Defense Production Act of 1950, this regulation let the Fed set minimum downpayments and maximum mortgage-repayment periods for residential properties. The Fed gave up the authority a few years later.
Of course, when Greenspan wails about not wanting to hurt the economy with rate hikes, none of his lapdogs in the press ever seem to question why the Fed hasn't used the tools at its disposal.
In any case, part of my reason for re-titling Greenspan's speech is due to the following comment: "After the bursting of the stock market bubble in 2000, unlike previous periods following large financial shocks, no major financial institution defaulted, and the economy held up far better than many had anticipated." And we all lived happily ever after.
What I'd like to know is: If this was all so benign, why did he and helicopter copilot Ben Bernanke panic -- to the tune of 13 rate cuts, all the way down to 1% -- about the possibility of deflation in 2001 as the stock bubble unwound? Were it not for the even bigger, more dangerous housing bubble that Greenspan has in turn precipitated, which has only postponed the inevitable, the fallout would have been commensurate with the size of the boom...