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Greenspan Still Haunts

Mike

Well-known member
Greenspan’s sins return to haunt us
By David Blake

Published: September 18 2008 18:39 | Last updated: September 18 2008 18:39

Back in 2002, when his reputation as “The Man Who Saved the World” was at its peak, Alan Greenspan, former chairman of the Federal Reserve, came to Britain to pick up his knighthood. His biggest fan, Gordon Brown, now the UK prime minister, had ensured that the citation said it was being awarded for promoting “economic stability”.

During his trip, Mr Greenspan visited the Bank of England’s monetary policy committee. He told them the US financial system had been resilient amid the bursting of the internet bubble. Share prices had halved and there had been massive bond defaults, but no big bank collapses. Mr Greenspan lauded the fact that risk had been spread, using complex derivative instruments. One of the MPC members asked: how could this be? Someone must have lost all that money; who was it? A look of quiet satisfaction came across Mr Greenspan’s face as he answered: “European insurance companies.”

Six years later, AIG, the largest US insurance company, has in effect been nationalised to stop it blowing up the financial world. The US has nationalised the core of its mortgage industry and the government has become the arbiter of which financial companies should survive or die.

Financial markets have an enormous capacity for flexibility, but market participants need to be sure that there are rules, and a referee willing to impose them. Permanent damage has been done to the financial system, despite the extraordinary measures of Messrs Henry Paulson, the US Treasury secretary, and Ben Bernanke, the Fed chairman, to address the problems that stem from the actions of their predecessors. As Mr Paulson has suggested, he is playing a hand dealt by others.

Many blame the Greenspan Fed for this mess. They are right, but not for the reason often cited. It is unfair to say low interest rates are to blame. In the past decade, there is no evidence the US suffered from excessive growth leading to inflation. The economy needed low interest rates and a fiscal stimulus to avoid a severe recession. The Fed was right to do its bit.

Where Mr Greenspan bears responsibility is his role in ensuring that the era of cheap interest rates created a speculative bubble. He cannot claim he was not warned of the risks. Take two incidents from the 1990s. The first came before he made his 1996 speech referring to “irrational exuberance”. In a Federal Open Market Committee meeting, he conceded there was an equity bubble but declined to do anything about it. He admitted that proposals for tightening the margin requirement, which people need to hold against equity positions, would be effective: “I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.” It seems odd that since then, in defending the Fed’s inaction, he has claimed in three speeches that tightening margins would not have worked.

The second incident stems from spring 1998 when the head of the Commodity Futures Trading Commission expressed concern about the massive increase in over-the-counter derivatives. These have been at the heart of the counter-party risk in the crisis. Mr Greenspan suggested new regulation risked disrupting the capital markets.

At the turn of the millennium, with no move to tighten margin requirements, a feedback loop sent share prices into orbit. As prices rose, more brokers were willing to lend to buy more shares. As share prices went up the buying continued, until the bubble burst. To create one bubble may be seen as a misfortune; to create two looks like carelessness. Yet that is exactly what the Greenspan Fed did.

Bruised by stock market losses, Americans bought houses. The mortgage industry used securitised bonds to ensure that the people who initiated the mortgage did not worry about getting paid back; risk was packaged and sold to others. This time Mr Greenspan did not just stand aside. He said repeatedly that housing was a safe investment because prices do not fall. Home owners could wait out any downturn. Is it any surprise that so many people thought if the world’s financial genius held this view it must be all right?

Even as things went completely wild, Mr Greenspan dismissed those who warned that a new bubble was emerging. It was just a case of a little “froth” in a few areas. Later, after waiting until 2007, two years after he left office, he conceded that “froth” had been his euphemism for “bubble”. “All the froth bubbles add up to an aggregate bubble,” he told the Financial Times.

This time, as with the equity bubble, the mistake was not to set interest rates too low; it was to stand back as wildly imprudent policies were pursued by mortgage lenders. Indeed, any lender would have been encouraged by his words in April 2005: “Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending.” Well, he was right about the rapid growth in subprime lending.

Mr Greenspan was in charge of supervising and regulating much of the banking industry for two decades. The Fed says it is responsible for ensuring “safe and sound banking practices”. It is right that other regulators should have stepped in, too – the US regulatory structure has not kept pace with market changes . But given the Fed’s institutional importance and Mr Greenspan’s personal stature, does anyone doubt that the Fed could have used its limited powers to ensure a closer examination of what was going on?

Mr Greenspan realises that something big has happened and describes it as a “once in a hundred years” event. But then, you do not get Alan Greenspans coming along every day.
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Greenspan is admitting that many who got home loans should never had been accomodated.

But with the collapse of the markets during and at the end of the Clinton Admin., along with low interest rates (some say way too low), left little options for investors and the public in a place to put savings, except in housing, which is exactly what happened. Too many homes were built, and too many were given the opportunity for home ownership.
 

fff

Well-known member
Yeah, it's amazing how smart Alan Greenspan was during the Clinton Administration and how stupid he was in the GWBush era.
 
A

Anonymous

Guest
fff said:
Yeah, it's amazing how smart Alan Greenspan was during the Clinton Administration and how stupid he was in the GWBush era.

:lol: :lol: :lol:

Yeah- it really got comical when in his book he backed what many former Bush officials are now saying "the Iraq war was all about oil"....
 

Mike

Well-known member
fff said:
Yeah, it's amazing how smart Alan Greenspan was during the Clinton Administration and how stupid he was in the GWBush era.

He wasn't very smart during the Clinton years either, it seems.

He couldn't stop the recession or "Dot Com Bust" with any irrational exuberance.

This mortgage meltdown didn't just start yesterday. It has been festering for 10-15 years.
 
A

Anonymous

Guest
This is the same "Foreclosure Phil" Gramm that McBusch and many neocons had appeared to have annointed as the future Treasury Secretary for a McBusch administration :shock: :roll: :(

Who's Whining Now? Gramm Slammed By Economists
'Nation of Whiners' Comments Criticized by Finance Experts in Light of Current Crisis

By MARCUS BARAM
Sept. 19, 2008


(ABC News Photo Illustration)Phil Gramm, John McCain's former economic adviser, left the campaign in July when he tried to counter criticism of the Republican candidate's economic policies by asserting that the country "had become a nation of whiners" in a "mental recession."

Even McCain came forward to say that he disagreed with Gramm's remarks, adding that someone who'd lost their job "isn't suffering from a mental recession."

And Barack Obama is using Gramm's comments and his support of deregulation, which prompted some of the risky lending that caused the current financial crisis, in a new TV ad that questions McCain's ability to handle the economy.

"They think the economy's fundamentally strong," intones a voice-over in the ad. "We know they're fundamentally wrong."

Though Gramm, a former Texas senator, is no longer a member of McCain's close-knit team, he still seems to be assisting the campaign.

Last week, former Republican presidential candidate Ron Paul says Gramm, who is a vice chairman of the investment banking division at UBS, called to urge him to endorse McCain. Gramm also appeared in the audience at an Aspen Institute Forum featuring McCain last

Gramm's comments seem all the more stark with the financial upheaval of the past few weeks, including the government takeover of mortgage giants Fannie Mae and Freddie Mac, as well as the de facto takeover of largest insurer AIG.

"This is a mentality that doesn't understand the nature of systemic risks in financial systems," says Joseph Stiglitz, Nobel Prize-winning economist and former chairman of President Clinton's Council of Economic Advisers. "It's social Darwinism."


Economic experts say that Gramm and others are to blame for the current crisis that is shaking Wall Street.

Gramm's successful effort to pass banking reform laws in 1999, which reduced decades-old regulations separating banking, insurance and brokerage activities, helped to create the current economic crisis.

"As a result, the culture of investment banks was conveyed to commercial banks and everyone got involved in the high-risk gambling mentality. That mentality was core to the problem that we're facing now," Stiglitz says.

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, also asserted that Gramm was mistaken, criticizing him and economic policymakers for not taking the risk of recession seriously enough.

"There is a recession -- that is clear and it doesn't make sense to blame middle-class folks," says Achuthan. "Policy holders should be held fully accountable for letting Wall Street run amok."

Achuthan agrees that Gramm's banking reform laws helped lead to the subprime mortgage crisis as commercial banks started taking enormous risks.

"We were setting up this bonfire years ago -- the deregulation, the inordinate amount of liquidity given to the system all set the stage for the bubble and the bust," he explains.

http://abcnews.go.com/Politics/story?id=5835269&page=1
 

Sandhusker

Well-known member
A large part of the reason crappy loans were written is because Fannie Mae was back there buying everything! There was a market for crap loans because the libs had a policy that everybody in this country was entitled to a home and Fannie was directed to operate accordingly. Just to make sure nobody forgot that directive, Fannie was "donating" to a hell of a lot of politicians, with two notable Democrats at the top of the list; Dodd, who was in charge of watching over Fannie, and a guy named Barak Obama. It's pretty obvious why they would grease the guard, but you can form your own opinions on Obama.....
 

fff

Well-known member
Sandhusker said:
A large part of the reason crappy loans were written is because Fannie Mae was back there buying everything! There was a market for crap loans because the libs had a policy that everybody in this country was entitled to a home and Fannie was directed to operate accordingly. Just to make sure nobody forgot that directive, Fannie was "donating" to a hell of a lot of politicians, with two notable Democrats at the top of the list; Dodd, who was in charge of watching over Fannie, and a guy named Barak Obama. It's pretty obvious why they would grease the guard, but you can form your own opinions on Obama.....

Are you saying they didn't donate to Republicans?
 
A

Anonymous

Guest
fff said:
Sandhusker said:
A large part of the reason crappy loans were written is because Fannie Mae was back there buying everything! There was a market for crap loans because the libs had a policy that everybody in this country was entitled to a home and Fannie was directed to operate accordingly. Just to make sure nobody forgot that directive, Fannie was "donating" to a hell of a lot of politicians, with two notable Democrats at the top of the list; Dodd, who was in charge of watching over Fannie, and a guy named Barak Obama. It's pretty obvious why they would grease the guard, but you can form your own opinions on Obama.....

Are you saying they didn't donate to Republicans?

7 of McSames top campaign advisors are former fannie and freddie lobbyiests :wink: :lol: :(
 

Sandhusker

Well-known member
fff said:
Sandhusker said:
A large part of the reason crappy loans were written is because Fannie Mae was back there buying everything! There was a market for crap loans because the libs had a policy that everybody in this country was entitled to a home and Fannie was directed to operate accordingly. Just to make sure nobody forgot that directive, Fannie was "donating" to a hell of a lot of politicians, with two notable Democrats at the top of the list; Dodd, who was in charge of watching over Fannie, and a guy named Barak Obama. It's pretty obvious why they would grease the guard, but you can form your own opinions on Obama.....

Are you saying they didn't donate to Republicans?

Highlight in my post where I said that.
 

Sandhusker

Well-known member
Oldtimer said:
fff said:
Sandhusker said:
A large part of the reason crappy loans were written is because Fannie Mae was back there buying everything! There was a market for crap loans because the libs had a policy that everybody in this country was entitled to a home and Fannie was directed to operate accordingly. Just to make sure nobody forgot that directive, Fannie was "donating" to a hell of a lot of politicians, with two notable Democrats at the top of the list; Dodd, who was in charge of watching over Fannie, and a guy named Barak Obama. It's pretty obvious why they would grease the guard, but you can form your own opinions on Obama.....

Are you saying they didn't donate to Republicans?

7 of McSames top campaign advisors are former fannie and freddie lobbyiests :wink: :lol: :(

They're just hired guns, working for a paycheck. Obama hired the CEO of Fannie! He was the one managing the joint! :lol: :lol: :lol:
 
A

Anonymous

Guest
“Sen. McCain bragged about how as chairman of the Commerce Committee in the Senate, he had oversight of every part of the economy. Well, all I can say to Sen. McCain is, ‘Nice job. Nice job.’” -Barack Obama
 

Sandhusker

Well-known member
Oldtimer said:
“Sen. McCain bragged about how as chairman of the Commerce Committee in the Senate, he had oversight of every part of the economy. Well, all I can say to Sen. McCain is, ‘Nice job. Nice job.’” -Barack Obama

And in 2006, he saw what was going on with Fannie and tried to regulate them, and was turned away! He warned that if things didn't change, there was going to be a big mess! I wonder why Obama didn't mention that? Again, we need Paul Harvey when Obama is talking....
 

fff

Well-known member
Sandhusker said:
Oldtimer said:
fff said:
Are you saying they didn't donate to Republicans?

7 of McSames top campaign advisors are former fannie and freddie lobbyiests :wink: :lol: :(

They're just hired guns, working for a paycheck. Obama hired the CEO of Fannie! He was the one managing the joint! :lol: :lol: :lol:

Jim Johnson hasn't worked for Obama since June. He wasn't an advisor; he was vetting VP candidates, unlike McCain's BFF Phil "deregulation" Gramm. And Johnson left Fannie Mae back in 1998.
 
A

Anonymous

Guest
Sandhusker said:
Oldtimer said:
“Sen. McCain bragged about how as chairman of the Commerce Committee in the Senate, he had oversight of every part of the economy. Well, all I can say to Sen. McCain is, ‘Nice job. Nice job.’” -Barack Obama

And in 2006, he saw what was going on with Fannie and tried to regulate them, and was turned away! He warned that if things didn't change, there was going to be a big mess! I wonder why Obama didn't mention that? Again, we need Paul Harvey when Obama is talking....

It wasn't all fannie or freddie....

I'm thinking many in Congress were caught asleep at the wheel- and actually bought into the administrations BS that everything was hunky dorry...Altho you think some of the dummies could have seen it coming- if an old fogie like me can predict it- and I could see what was happening 3 years ago just from the court foreclosures/executions/suits I was handling- and how collection increased legal filings increased 200-300% in just the last few years (while the local population actually decreased)....

I watched Congressional hearings on the economy and they kept getting the same thing from the Administration- Paulson and Cox-that kept saying "the fundamentals of the economy are strong" and seemed to be saying everything was hunky dorry and no worries... :eek:o: I don't know if they were incompetent or lying- or both- but they sure weren't giving the account of the economy I was seeing...

The thing is this goes back much further than just the 1 1/2 years the Dems have been in control- it goes back to Clintons administration and a Repub controlled Congress...

And most recognize this goes far beyond freddie and fannie--it goes to 8 years of absolutely no oversight or regulation after the passage of the "Forclosure Phil" Gramm fathered Gramm-Leach-Bliley Financial Services Modernization Act that deregulated all banking/mortgage/ investment services (many of which were rules put in in the 30's to keep such things from happening again) and then Gramm's slipping the 262 page Commodity Futures Modernization Act into a must pass budget bill at midnite in Dec 2000 (that most Congressman now admit or at least claim they didn't know was there) that took away all oversight and regulation of commodity trading (and allowed the Enron Energy Scandal)... Both passed by a REPUBLICAN Congress and signed into law by Bill Clinton..

And this is the same Phil Gramm that McBusch and the neocons had apparently annointed as his future Treasury Secretary :(

Gramm's successful effort to pass banking reform laws in 1999, which reduced decades-old regulations separating banking, insurance and brokerage activities, helped to create the current economic crisis.

"As a result, the culture of investment banks was conveyed to commercial banks and everyone got involved in the high-risk gambling mentality. That mentality was core to the problem that we're facing now," Stiglitz says.

Economic experts say that Gramm and others are to blame for the current crisis that is shaking Wall Street.

Gramm's successful effort to pass banking reform laws in 1999, which reduced decades-old regulations separating banking, insurance and brokerage activities, helped to create the current economic crisis.

"As a result, the culture of investment banks was conveyed to commercial banks and everyone got involved in the high-risk gambling mentality. That mentality was core to the problem that we're facing now," Stiglitz says.

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, also asserted that Gramm was mistaken, criticizing him and economic policymakers for not taking the risk of recession seriously enough.

"There is a recession -- that is clear and it doesn't make sense to blame middle-class folks," says Achuthan. "Policy holders should be held fully accountable for letting Wall Street run amok."

Achuthan agrees that Gramm's banking reform laws helped lead to the subprime mortgage crisis as commercial banks started taking enormous risks.

"We were setting up this bonfire years ago -- the deregulation, the inordinate amount of liquidity given to the system all set the stage for the bubble and the bust," he explains.

http://abcnews.go.com/Politics/story?id=5835269&page=1

Anyway since it feels so good after the BS some of you neocons have given me:

I TOLD YOU SO!!!! :wink: :lol: :p :p
 

Sandhusker

Well-known member
fff said:
Sandhusker said:
Oldtimer said:
7 of McSames top campaign advisors are former fannie and freddie lobbyiests :wink: :lol: :(

They're just hired guns, working for a paycheck. Obama hired the CEO of Fannie! He was the one managing the joint! :lol: :lol: :lol:

Jim Johnson hasn't worked for Obama since June. He wasn't an advisor; he was vetting VP candidates, unlike McCain's BFF Phil "deregulation" Gramm. And Johnson left Fannie Mae back in 1998.

Fannie was buying crap and was greasing politicians in 1998 .....

As CEO of Fannie Mae, Johnson, a former chief of staff to Vice President Walter F. Mondale and chairman of the board of the Kennedy Center, was the beneficiary of accounting in which Fannie Mae’s earnings were manipulated so that executives could earn larger bonuses. The accounting manipulation for 1998 resulted in the maximum payouts to Fannie Mae’s senior executives — $1.9 million in Johnson’s case — when the company’s performance that year would have otherwise resulted in no bonuses at all, according to reports in 2004 and 2006 by the Office of Federal Housing Enterprise Oversight.” (Jonathan Weisman and David S. Hilzenrath, “Obama’s Choice Of Insider Draws Fire,” The Washington Post, 6/11/08
 
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