Enough with the graphs, already. And anyway, we regular people shouldn’t have to take a look at those complex spaghetti graphs to figure out if we’re being taken care of. How could we have known that Greenspan was out in left field? Should we have seen this coming by listening to what he said? I think the answer is a solid, "Maybe":
Somebody listening to his most famous speech should’ve noticed that little piece at the end of the paragraph:
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“But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability.”
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| Alan Greenspan [1996] |
What does “We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability” actually mean? On the face of it, he’s saying that the Market is none of his business if it doesn’t effect the core economy – standard Ayn Rand "hands off" stuff. But how could one possibly know whether a “collapsing financial asset bubble” would effect the economy in advance? After the fact is too late to know [which is exactly what happened]. And he’s mentioning Japan where a “collapsing financial asset bubble” in 1989-90 destroyed their economy all the way until the present – some 20 years later. And when, in history, did a “collapsing financial asset bubble” not “impair the real economy”? So he’s rationalizing in advance, ignoring the possibility that Shiller was completely correct in calling the market irrational and later pointing out the financial bubbles.
And if Greenspan was such a "hands off" person, how about this comment?
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“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,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.
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| Alan Greenspan [2003] |
If he’s not concerned “as a central banker” about how the market functions, why is he saying “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”? Who exactly is the "we" in that sentence? Why is he mounting an elaborate campaign with Larry Summers and Ron Rubin to smash Brooksley Born’s regulation of Derivatives? Is that what a Chairman of the Fed is supposed to be doing? What does that have to do with central banking and protecting America’s assets? And why is our chief "regulator" opposing regulation?
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