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Mark Gongloff

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Greenspan Declares Obama's 'Worst Mistake,' Was On Deficit

Posted: 05/ 1/2012 2:09 pm

Alan Greenspan said something about the budget deficit on Tuesday.

The reason this is "news" is because it is shocking that Alan Greenspan is still allowed ever to speak publicly about matters of importance, when the national interest would perhaps be better served by having Alan Greenspan carted around the United States in stocks, giving citizens the opportunity to hurl tomatoes at him.

What ever did the august former chairman of the Federal Reserve say about the budget deficit this time? Speaking at the Bloomberg Washington Summit, he declared that the "worst mistake" President Obama made was not embracing the deficit-cutting recommendations of the Simpson-Bowles Commission "right away," reports Jeffrey Sparshott of the Wall Street Journal.

Hopefully the president will treat this piece of advice with the seriousness it deserves, considering the track record of prescience that defines Alan Greenspan's career.

Let's all climb into the Huffington Post Time Machine, shall we, and return to the halcyon days of early 2001, when President Bush the Younger, freshly installed in the White House, was pushing for giant honking tax cuts.

What do we see over there on Capitol Hill? Why, it's Alan Greenspan, warning Congress of the grave national emergency of having budget surpluses "as far as the eye can see." Barely pausing to question the likelihood of that forecast, he told Congress that it needed to head off this looming crisis of too-much-money-having immediately. Preferably with -- you guessed it -- giant honking tax cuts.

Congress passed those tax cuts, a huge step in erasing those budget surpluses, which not only disappeared quickly but turned just as quickly into nightmarish deficits.

About two years ago, Greenspan allowed that maybe we should go ahead and repeal those tax cuts he had been instrumental in passing. But he didn't confess to having made a mistake in pushing for those cuts, based on a short-sighted confusion of tech-bubble-era tax receipts for a permanently higher level of productivity and worker income (not to mention sheer political hackery). Instead, he said that both positions were perfectly consistent. He hates both surpluses and deficits equally, he told the New York Times.

He is now deeply concerned about the evils of budget deficits because those deficits now exist, you see. He told the Times that these deficits could even bring on a financial crisis, maybe one even worse than the 2008 financial crisis that he utterly failed to see.

Greenspan would like us to believe that he saw that crisis coming, too. A couple of years ago, right around the time he was saying the Bush tax cuts needed repealing, he wrote a paper for the Brookings Institution called, simply, "The Crisis," in which he discussed the causes of the global financial crisis.

He suggested that nobody could really have seen the crisis coming, although he also recalls sagely warning his colleagues that too-high housing prices wouldn't last forever.

He said nothing about that danger publicly, Paul Krugman reminded us at the time. Instead he said stuff like "a national severe price distortion seems most unlikely in the United States."

He also pushed hard against regulation of the derivatives, including credit default swaps, mortgage backed securities and collateralized debt obligations, that nearly brought down the financial system.

"The regulation of derivatives transactions that are privately negotiated by professionals is unnecessary," he said in one of these infamous proclamations, refuting the worries of then-Commodity Futures Trading Commission chief Brooksley Born. "It hinders the efficiency of markets."

In fact, he added elsewhere, such derivatives had made the financial system "far more flexible, efficient, and hence resilient." Eh, maybe not so much.

So remind me again why Alan Greenspan is still giving speeches to anybody other than pigeons in the park?

 
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