Many economists incapable of blaming Alan Greenspan

Writing at the National Association of Realtor's website, chief economist Lawrence Yun takes up the issue of the bursting housing bubble and, like many other economists, fails to lay any blame at the feet of retired Federal Reserve Chairman Alan Greenspan.

Is that rationale?

Is there some sort of cognitive dissonance amongst a large swath of the dismal set that makes them incapable of faulting the world's most important economist of the last two decades? The man who many have said was the second most powerful man in the world behind the President of the United States (does anyone say that about Ben Bernanke?).

Is blaming Alan Greenspan to an economist like a preacher blaming God?

Martin Feldstein, chairman of the Council of Economic Advisers under President Reagan and currently a professor at Harvard, did everything but name names in an op-ed from yesterday's Wall Street Journal:

There is plenty of blame to go around for the current situation. The Federal Reserve bears much of the responsibility, because of its failure to provide the appropriate supervisory oversight for the major money center banks.

That's good progress, to be sure.

Time and again you hear that the Federal Reserve, along with other government agencies, is one of the key regulators for the lending industry (certainly the one with the largest bully-pulpit), yet many economists seem to think that you can just lower interest rates to freakishly low levels and let the market take care of the rest.

Here's Mr. Yun's take on things:

Though some in the blogosphere have figured Alan Greenspan as one of the key persons to blame for the current housing mess, I do not blame Mr. Greenspan. I believe there is plenty of blame to go around due to other factors. Global capital providers misunderstood and were simply not careful about purchasing securities composed on little income documentation and of risky-borrowers. Mortgage originators just originated loans to anyone including to suspicious borrowers because they had no skin in the game (see the recent academic article on this topic by a group of professors from the University of Chicago). There were also many books about how to endlessly profit from real estate. Consumers — particularly the flippers/speculators — also need to bear some of the blame.

But the biggest blame in my view goes to Moody's and Standard & Poor's — the rating agencies. If they had properly assessed the risk as is their job, then global capital would have never reached subprime homebuyers and flippers. The housing boom would have stopped dead in its tracks. We do not yet know how much of the ratings firms' assessment were clouded by their financial interest in giving out easy Triple-A grades. Many workers at Moody's and Standard & Poor's took home hefty bonus checks when revenue skyrocketed from providing high ratings.

Zero blame for the former Fed chairman - Larry must have read The Maestro's book and listened in to the many book tour interviews where responsibility was repeatedly and forcefully denied.

Fascinating.

If memory serves, James Hamilton at Econbrowser made a similar argument some time ago, faulting the rating agencies almost to the exclusion of all other parties.

What is it about economists?

When the space shuttle blows up, engineers blame other engineers. That's how you fix problems. You find out the root causes, where and how the failures occurred, and you fix them even if it means undertaking a major redesign.

Even someone who writes the blog that you are currently reading doesn't place all the blame with the Federal Reserve. Written more than two years ago in the bio section of this blog you'll find the following:

What's up with the name?

One of the first things you have to do when you create a blog is to give it a name. Then you have to announce yourself to the rest of the world with your first post - something like, "This is my first post". Many people stop there.

What I really wanted for the name of this blog was something like "Our Economy", because I wanted to be able to write about anything having to do with the economy or financial markets. But how dull would a name like that be?

Then I thought, "Well, what word best describes our economy?"

To me, clearly, today's economy is a mess. Most people don't realize it yet, but they are beginning to understand that all is not well. Soon, more people will be referring to this economy as a mess.

The next question is, "Who made this mess?"

While Federal Reserve Chairman Alan Greenspan is not solely responsible for the condition in which we find ourselves, he, more than any other individual, should get the credit or blame for what happens in the world economy in the next few years.

I, like many others today, believe the coming years will not be pretty - that we will all be living with the mess that Greenspan made for years to come.

Why is it that some economists are incapable of blaming Greenspan?