He's largely to blame

Nobel Prize winning economist Joseph Stiglitz, the former World Bank Vice President and chief economist who is now a member of the Columbia University faculty, has been one of the more reliable sources for "Greenspan mess" sightings in recent months. Once again he comes through in this Bloomberg interview.

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Here's the good stuff - debating Greenspan - just past the one-minute mark.

Host: Alan Greenspan in the last 24 hours said the recession is going to be deeper than the last two contractions. Let's not debate that. Let's debate Greenspan because you say that he basically left the U.S. in this mess.

Stiglitz: Exactly. I mean, perfectly right about the fact that this downturn is going to be the worst downturn in a quarter century. But he's largely to blame. And why is he to blame? Not just because he looked the other way - he was asleep at the wheel - in some ways, he was an active promoter.

When people asked the question, "Aren't you worried about a housing bubble?", he said, "Oh no, it's just a little froth in the market." He actually encouraged it. Congress gave him the authority to impose regulation to dampen the bubble in the housing market and he decided not to use that authority. Bernanke finally did it, but it was like closing the barn door after the horse got out.

Host: And you say that misguided monetary policy and poor regulation got us into this, but the flip side of that doesn't really get us out of this mess, does it?

Stiglitz: Exactly. Once you start tightening the regulation, it helps deepen the downturn. You don't have much choice at that point, but it means that it makes it more difficult to continue the bad practices. You don't want to continue the bad practices, but that means that consumption is going to be contrained and that is going to help push the economy down.

If The Maestro could have just stayed on as Fed Chairman for a few more years, he probably could have gotten us out of the current predicament.

It was a pretty simple formula - when one asset class goes down, start inflating another one. Poor Ben Bernanke has yet to find the next "inflatable" asset class.

And speaking of the current Fed chief, from the Bloomberg article on the same subject come some not-so-kind words for Mr. Bernanke along with President George Bush and the European Central Bank:

"Clearly they acted too late," Stiglitz said. "The dramatic lowering of the main interest rate by 75 basis points was a panic not a prudent measure."

The $3 trillion cost of the Iraq war, which diverted the country's resources from investment in economic productivity and sent the budget deficit higher, will continue to hold back growth in the U.S., Stiglitz said.

European monetary-policy makers may also be under- estimating the risks to economic growth, Stiglitz said. The European Central Bank's mandate, which sets price stability as the sole objective, is "flawed'' because it prevents ECB President Jean-Claude Trichet from supporting job creation.

"He should not be focusing so much on inflation especially when so much of it is imported," Stiglitz said. "Higher interest rates won't solve the problem of higher oil prices."

Was there a good word said about anybody or anything during the entire interview?