Greenspan Redux: The Fireman’s Blowback

Alan Greenspan is having a tough time: the world has caught on to his shenanigans at the Fed, and much sooner than he would have liked. So it is that he’s taken to the hustings, protesting that he had no role in the current credit debacle or the US housing market and construction markets.

If he weren’t already guilty of malfeasance, he would now be guilty of the added charge of dissimulating – I mean, not telling the truth.

His most recent defenses, published in the FT and elsewhere, basically go like this: the whole world had a problem with housing, so why was I to blame? And, following: since the lenders and repackagers were to blame for the subprime mess, why bother me?

Clever, but no one ever said Alan was stupid.

Alan’s interest rate plunge after 2000 directly led to what I’ve termed Refi Madness, which began all this. Alan knew full well that putting US interest rates effectively below zero would pull all kinds of equity out of housing assets, even though Americans are the worst savers in the world, and even though homes are often their only and largest asset. Alan needed them spending that equity money on WalMart, and he went after it and got it.

Period. End of argument. Admit it, Alan: you screwed the people.

Add to this, that the original problem had nothing to do with subprime, which remains a subset of the US housing disaster. Most loans in default a year ago were not to subprime borrowers, but to prime borrowers over their head, having over extended themselves in speculation. Some bought three condos, some upgraded their own housing to too-expensive new homes, sure that prices would continue to go up forever.

Did the head of the Fed, watching this, think that house asset pricing would keep growing at 20% and more per year, forever? No, he didn’t.

Alan, you’re completely and personally responsible for doing something which was wrong. You may have intended well, but that’s your only defense. Don’t try for anything fancier, it just comes across as sad and pathetic, two qualities you don’t want to add to your current legacy of overreaching and misunderstanding.

I would like to thank Tim Coldwell for his smart and helpful posts on this and related banking subjects, most of which readers will find under the Ben and Hank thread below. Tim is a well-known European tech CEO who has been around long enough to recognize $42B in BS when he sees it.

I continue to think that Ben Bernanke, having been given a really tough and thankless task, is so far doing exemplary work. Keep it up, Ben! No one envies you, but we are all glad you are there.