There have been numerous attacks on the former Fed chairman criticizing his loose monetary policy from 2000-2004. Low interests rates made mortgages very affordable and people began taking on debt they couldn't realistically pay back. All of this lead to a bubble in housing prices and gave banks and other financial institutions a lot of bad debt on their books. The ongoing credit crisis is a product of many events and although some may have been triggered by monetary policy at the Fed I think it is unfair to blame Greenspan. Instead of looking back let's look forward and find a solution to the problem. Regardless of who's fault it is, the current Fed and regulators are the ones that will be responsible for correcting the crisis.
The WSJ has a great article (click title) on the matter.
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2 comments:
I think the attacks on Greenspan are unfounded. Not only did he make the right call by bringing rates down to ensure the US didn't have a deflationary decade like Japan had, but the real problem here isn't that he even brought rates so low. Hear me out...
The real problem is that when he started pushing the overnight rate back up, long rates didn't follow. That was the "conundrum" and that is why rates stayed so low so long. Was it Greenspan's fault that markets had changed and the term structure no longer behaved as it always had? No. Was it Greenspan's fault that Basel regulations caused banks to securitize and sell every loan they made so that this thing spread all over? No. Was it Greenspan who wrote the Community Reinvestment Act in the 1990s, forcing bannks not to discriminate when deciding who to make loans to? No.
Was it Greenspan that took rates down originally, though? Yes, and so the blame is laid upon him so people like Bill Fleckenstein can sell books to pay for his hair cuts.
I agree.
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