We are not terribly tolerant of failure. A CEO who disappoints investors and the markets often finds plenty of time to read by the fireside. A coach or manager who can't win finds his ears ringing from boos and is soon nothing more than a spectator. Yet, when it comes to something of real significance, like the overall performance and management of our economy, we seem quick to ignore poor performance. Surprisingly, we also seem comfortable believing that the captain who ran this ship aground is capable of once again making her seaworthy. I must admit, I don't understand why.
This morning we were treated once again to testimony from Alan Greenspan, the former Chairman of the Federal Reserve. As with many of his recent statements, his testimony was carefully tailored to avoid any responsibility for the current mess. (While much of his testimony over the years was hard to follow, his position on his reputation is always clear). Included in this morning's statements were many gems, some new some old. I am baffled how anyone can believe that he can offer any advice to guide us through these troubled seas.
Under his stewardship, we were treated to a number of asset bubbles that, cumulatively, eroded the foundation of our economic system. The last bubble, the Housing and Sub-Prime Mortgage crisis, is perhaps emblematic of how we should remember his long tenure. Let's take a look at the Fed's batting average. On the economic front, the housing industry is in shambles; losses in home equity are staggering; foreclosures are occurring at the fastest pace in a generation; the entire debt capital market system is in disarray; enormous writedowns have threatened the stability and viability of many financial institutions; from the peak, equities have lost approximately 40% of their value putting at risk the entire pension and retirement savings system of this country; the industrial economy is now slowing; jobless claims are exploding and the unemployment rate will probably soon exceed 7%. On the "inflation side", we experienced a staggering run-up in the price of most basic commodities (including the price of housing) while the Fed stood blindly by deigning to ignore the evidence and the attendant cost. (I will go so far as saying that without the explosion in food, energy and other basic necessities, the sub-prime mess would have been a manageable problem. While rate resets caused some distress, the increased cost of basic necessities were far more significant for many people. Both occuring at the same time was a disaster).
I do not want to walk away hoisting all the blame on the Federal Reserve and its former Chairman. As I have noted elsewhere, other members of the team have had their share of playing time. The Treasury Secretary, who has oversight of much of the financial and economic system, has a hand in this mess. So does Congress and a number of other regulatory oversight bodies. Wall Street, and Main Street too. However, Chairman Greenspan cloaked himself in an aura of economic authority unparalleled in modern times. And his unwillingness to acknowledge responsibility for the consequences of his policies is simply unacceptable.
In a broader sense, given the breadth and depth of the problems confronting us, we must recognize that we will not be able to get out of the cellar without making wholesale changes. We need to have a fresh perspective. The manager needs to go. The players need to go. The playbook needs to go.
(This article has been modified from an article previously published by the author under the title "Zero For Too Many").