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Marketplace Scratch Pad

Really, Mr. Greenspan?

Scott Jagow Feb 12, 2009

Tonight, CNBC airs a two-hour documentary on the economy’s collapse called “The House of Cards.” It includes comments from former Federal Reserve Chairman Alan Greenspan. Greenspan says he was baffled by what was happening in the subprime mortgage market until late 2005, when it was too late. Greenspan is often blamed for letting interest rates sink too low for too long, but he says if the Fed had stepped in, the outcome would have been painful:

“We could have basically clamped down on the American economy, generated a 10 percent unemployment rate. And I will guarantee we would not have had a housing boom, a stock market boom or indeed a particularly good economy either.”

Uh, excuse me, but with all due respect, Mr. Greenspan, what in the world do we have now?

You can read a little more about Greenspan’s comments here at the New York Times Deal Book blog.

I don’t have a problem with Greenspan’s supposed economic philosophies. I respect people who have their own vision and follow through on it. I do have a problem when actions belie words. In 2004, Greenspan gave a speech in which he said people should consider taking out Adjustable Rate Mortgages. Could he have given a worse piece of advice at a worse possible time? Then, a few days later, he made comments praising fixed-rate mortgages. Does that kind of wavering indicate a man who’s adapting to circumstances or that he’s a waffler?

Greenspan lowered rates until you couldn’t see them with a microscope, and then he raised rates like a madman once he saw what he had wrought. The man who once talked of “irrational exuberance” did not keep much rational control of the monetary supply, which was his primary job as Fed Chairman.

It doesn’t accomplish much to second-guess ad naseum. Greenspan had one of the toughest jobs in America. I guess what bothers me the most is that he doesn’t take responsibility for his mistakes, which may be well-illustrated in tonight’s documentary.

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