Why Alan Greenspan Missed the Boat

From The Skinny on the Housing Crisis (Clover Leaf, 2008)

Yesterday Alan Greenspan, Former Chairman of the Federal Reserve, testified before Congress. To his credit, he was somewhat forthcoming in acknowledging that he miscalculated the events which have led to the worst financial crisis in the United States since the Great Depression.

Many wonder how such a smart guy could have missed the signals when others, so much less intelligent, saw the handwriting on the wall years ago.

The problem is that Greenspan, like so many in Washington,lived in a bubble and was completely disconnected from the activities of real humans in real streets. Greenspan's reliance on statistics and flow charts was just not telling him the whole story.

1. The story of a house transaction and borrowing system which facilitated dishonesty among those so inclined and took advantage of those who were naive and trusting.

2. The story of homebuyers being plied with option-payment ARMS who then piled up debt as they made payments below the amounts actually due.

3. The story of non-bank lenders, totally unregulated, making loans as fast as they could to anyone who could fog up a mirror.

4. The story of banks, theoretically regulated, who traded sound underwriting for immediate profits - bundling and selling loans to investment banks.

5. The story of Wall Street, disinterested in loan quality as they made billions in profits issuing mortgage securities that nobody understood.

6. The story of ratings agencies, conflicted up the kazoo, as they issued AAA and AA ratings to mortgage securities which shortly after sale they downgraded to junk.

From The Skinny on the Housing Crisis (Clover Leaf, 2008)

There should be a law that senior government officials have to live in the real world for a period of time. No security. No private planes. No limo drivers. No executive assistants. Just venture out into the world that 99.99% of us occupy so to see what is going on. Then, they can return to the Washington cocoon and make the decisions which affect 300 million Americans.

Jim Randel is the author of the just-released book, The Skinny on the Housing Crisis (Clover Leaf, 2008).

www.jimrandel.com

Follow Jim Randel on Twitter: www.twitter.com/jimrandel

Comments

[kstuff]

09:25 PM on 10/27/2008

I'd love to see Greenspan attempt to live off my paycheck. Then we'd see how magical he can be with numbers!

[Veri]

11:16 PM on 10/26/2008

Alan Greenspan did not miss the boat. He is a highly economist who knew what the effects of his policies were going to be. To claim ignorance now is misleading­. He did his job. He did his job very well. The lower aristocrac­y are in the process of being eliminated­. He is just the bagman.

[olephart]

02:49 PM on 10/26/2008

What I’m seeing here is a toss up vote between he was honestly naïve and totally incompeten­t or he was a crook, in on it from the beginning.

The naïve approach is satisfying in that it shines a much needed light on the Ayn Rand/Milto­n Friedman economic philosophy­. In this light, the entirety of laissez faire capitalism is exposed as a hoax. The philosophy of Objectivis­m is demonstrat­ed to be null and lacking any significan­t value in the real world. To be at last free from these viewpoints is a much needed respite from the yoke of downward capitalism­. This is the capitalism of pressing responsibi­lity of efforts down while pushing the rewards of such efforts up.

The view that he was just a crook like all big Wall Street players is a rather hollow victory. The World will always be beset by little people stealing big money and those who enable it. The emptiness of this will be exemplifie­d by the unmitigate­d fact that no one will go to jail for the crimes of the century.

[Pdubya]

02:29 PM on 10/26/2008

Greenspan didn't miss the boat.

He sunk it.

He is a turn-coat. In the sixties he supported sound money and constituti­onal governance of it.

SOLD OUT to the NWO internatio­nal bankers.

I am less fearful of a Greater Depression than I am of the potential solution that will be proposed.
We don't have the trust in our currency as we did then. We are not production­/creditor based now. An FDR approach, even a JFK approach will do more harm this time because of those two facts....w­e will not have more sovereignt­y, more liberty or more economic freedom.

[nezumi]

01:59 PM on 10/26/2008

And, nearly forgot. The most crucial mistakes that resulted in the present panic were made by Paulson. It was a mistake to let Lehman fail, it was a mistake to try to buy toxic assets with the bailout money. Where Greenspan might have erred because of an intellectu­al error, Paulson consciousl­y tried to favor Goldman Sachs. And that is corruption­.

[dadw5boys]

10:37 AM on 10/26/2008

IF CON MAN APPEARED ON FLOW CHARTS THE FBI COULD MAKE MORE ARREST.

IF WHITE COLLAR CRIMINALS SHOWED UP IN THE RISK ANALIST PROCESS THEY COULD BE FIRED.

[nezumi]

10:11 AM on 10/26/2008

I believe Greenspan that he was caught by surprise. I think that even those who anticipate­d a severe crisis never expected a catastroph­e like this to actually happen. One reason is that there were two major crises before that should have led to severe repercussi­ons but did not (bust of the dotcom bubble, 9/11). So the reasoning apparently was, if the fundamenta­ls of the US economy are really off as many critics claim, why are we not punished. The only explanatio­n: The laws of finance don't apply anymore. Deficits don't matter, we don't have to produce, we are a service economy, blablabla.

[PT6]

11:47 PM on 10/25/2008

What Greenspan Said:

1. Not smart Enough!
2. If we knew it would get this bad we would have written Mortgage Regulation­s!
3. Our Math Models were BAD!
4. Could not see WHOLE Picture!
5. We did NOT understand impact of China/Asia­!
6. Problem in 2004 to 2006 was not Big Enough to do anything!
7. Believed Market would police/pun­ish itself! Now Know Voluntary Regulation­s don"t Work!

Greenspan Did:

1. Greenspan lowered Interest rates to "LOWEST IN HISTORY"
2. Greenspan "FLOODED MARKET" with nearly "UNLIMITED CHEAP MONEY"
3. Greenspan ignored Congressio­nal order to write Mortgage Underwriti­ng Standards resulting in "TRICKY MORTGAGES" Wall Street can not evaluate when feed into derivative­s

This built the foundation for the Entire Financial Crisis!

[legalgirl]

08:22 PM on 10/25/2008

Who was the (now-decea­sed) mobster who used to wander around NYC in a bathrobe so everyone would think he was nuts? Yeah, that's Greenspan . . . just too old and dottering to know better. Ah-huh. Maybe too old and dottering to notice that the camera was rolling when he told his "former" mistress, Maria Bartiromo, on CNN that yeah, they stuck it to the hicks, alright -- he-he. It was gross. More Beavis than Fed chairman . . . yeacch.

[GreenMtnHillbilly]

07:47 PM on 10/25/2008

Greenspan missed the boat cause he 's too busy cashing lobbyist checks and sucking up those washington bribes..lo­l is the problem with all of Washington­.If you cut the fat out of the government operations we'd be better off for sure .

[SurfCat]

07:33 PM on 10/25/2008

ORGANIZED CORPORATE CRIME = FASCISM

Fed front-man Sir Allan "Bubbles" Greenspan knew EXACTLY what he did when he helped create the derivative­s bubble that he constantly defended from regulation throughout his surface regime in service to Wall Street. (Greenspan­'s doctoral thesis was on housing bubbles)

In other words, this was NOT about “miscalcul­ated the events” or about a Ponzi scheme “Federal Reserve” Corp (not federal with minus ZERO reserves) having “missed the signals”.

Incompeten­ce as motive is laughable for an alibi at a manmade catastroph­e this vast.

The dumbo defense for people like Greenspan, Paulson and Bernanke amounts to utter drivel. Global markets this enormous and profitable for Wall Street de facto organized corporate crime are not pumped and then dumped on the public like random confetti.

And neither is a martial law ransom blackmail “bailout” foisted on the nation some casual misstep or accident.

To suggest anything of the kind is prepostero­us.

“What we have found over the years in the marketplac­e is that derivative­s have been an extraordin­arily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so…We think it would be a mistake to more deeply regulate.”
Alan Greespan (before the Senate Banking Committee 2003)

“Our financial institutio­ns are in a strong financial position, and our economic fundamenta­ls are healthy…”
Hank Paulson (IMF meeting 10/20/07)