The WSJ Greenspan story: Bad on so many levels

Today's front page story in the Wall Street Journal which carries excerpts from an interview with Former Fed chairman Alan Greenspan is bad on so many levels that it's almost sad to have to write this up, but, here goes.

Former WSJ chief Fed watcher Greg Ip is now gone from the Journal, apparently happily writing away anonymously at The Economist, and David Wessel has occasionally filled the rather large empty shoes left behind.

The results this time are decidedly mixed.

As perhaps part of the general "Murdoch makeover" of the paper where a fluff piece of one sort or another now always appears at the bottom-middle of the front page, the Greenspan interview, also on page one, is an added bonus in the today's edition.

Having lost much of his credibility in recent years, but continuing to mount a strong defense that continues to be effective on a disturbingly large percentage of the population, the amount of caveats and qualifications that David Wessel saw fit to include in today's story was astounding.

Of course the news here was about a possible bottom in home prices in 2009, the remarkably lucid assessment of the government rescue plans for Bear Stearns, Fannie Mae, and Freddie Mac, along with the loopy idea of encouraging immigration to boost demand for housing.

But, look at all the less-than-complimentary commentary that Wessel provided:

But his star no longer shines as brightly as it did when he retired from the Fed in January 2006.

Mr. Greenspan has been criticized for contributing to today's woes by keeping interest rates too low too long and by regulating too lightly.
...
In the past, to be sure, Mr. Greenspan's crystal ball has been cloudy. He didn't foresee the sharp national decline in home prices. Recently released transcripts of Fed meetings do record him warning in November 2002: "It's hard to escape the conclusion that at some point our extraordinary housing boom...cannot continue indefinitely into the future."

Publicly, he was more reassuring. "While local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity," he said in October 2004. Eight months later, he said if home prices did decline, that "likely would not have substantial macroeconomic implications." And in a speech in October 2006, nine months after leaving the Fed, he told an audience that, though housing prices were likely to be lower than the year before, "I think the worst of this may well be over." Housing prices, by his preferred gauge, have fallen nearly 19% since then. He says he was referring not to prices but to the downward drag on economic growth from weakening housing construction.

The commentary became even more harsh when the general public was included after additional excerpts appeared at this post at the WSJ Real Time Economics blog.

A few choice selections are provided below (note that the two apparent "Greenspan Mess" sightings, unfortunately, do not qualify as such as they are in the comments section and not in the main story):

Why didnt he mentioned that it was….HIM THAT CREATED THIS NIGHTMARE….IN THE FIRST PLACE…..
Comment by ANONYMOUS. - August 13, 2008 at 5:57 pm


Mr. Greenspan, Thank you for your service to the nation. Now I want to ask you where you were while the problems you speak of were festering. Wasn’t it under your watch that the seeds of today’s problems were sewn? Many of the points you make are valid; the current system is broken, but again, I ask you why you didn’t raise these questions while you were in charge. Today, after the legislation has been signed, it’s a bit late to make these criticisms.

While Im at it, let me also suggest that an action on the Fed’s part could have cooled the tech bubble before it got out of hand; you could have headed off the tech bubble by raising the Margin Requirements. Thanks.
Comment by Jim Ogburn - August 13, 2008 at 6:07 pm


The irresponsibility of the government to overspend that Mr. Greenspan sponsored for years was transferred to the people. Living beyong the means is the recipe for financial disasters.
Comment by Gabriel - August 13, 2008 at 6:29 pm


This clown is responsible for the housing bubble, yet he still has the nerve to show his ugly face.
Comment by Freddie Big Mac - August 13, 2008 at 6:41 pm


Hey Dont blame ME. Mr.Bubble…{ALAN} Started this Night-mare with his policy of..CHEAP,CHEAP MONEY…I Inherited this “DEBACLE”…I know that the ship is sinking fast….But remember…I ONLY WORK HERE….What do you WANT an MIRACLE??????
Comment by BEN BERNANKE. - August 13, 2008 at 8:18 pm


Amazing that I actually agree with this guy on one point: If the government has to give one cent to the GSEs they need to be nationalized and liquidated.

This does not absolve him of responsiblity for creating this mess in the first place. Where were the regulators when Wall Street perpetuated this scam? Why did he keep rates irresponsibly low for way too long?

Even now he is dissembling by saying that prices will bottom next year….though they may continue to drift lower past 2009. So what’s it going to be? Will they bottom or drift lower? You can never get a straight answer from liars and politicians. IMO, he is both.
Comment by Kodiak - August 13, 2008 at 8:22 pm


In his desperate efforts of late to defend himself, Greenspan blames the housing bubble on a global savings glut that pushed down interest rates. But the Fed policy of easy money helped create that overseas savings glut in the first place by triggering a massive US buying spree from abroad. So he can hardly claim that the Fed under his leadership had no role in creating the conditions for the housing bubble. True, once the world was awash in money, the Fed’s efforts to raise rates had much less leverage than usual at home. But the Fed had essentially shot itself in the foot by creating those conditions of excess global liquidity in the first place.
Comment by John - August 13, 2008 at 8:30 pm


Someone should tell this bum to shut up.
Comment by Good Luck - August 13, 2008 at 9:12 pm


I “TOLD” Helicopter BERNANKE….To ALSO KEEP THE RATES “LOW”…Until the “BANKS” Get out of this “MESS”….The only problem is….We are “Destroying” the Entire U.S.A. Economy…..So What.
Comment by ALAN GREENSPAN, Mr.BUBBLE. - August 13, 2008 at 9:35 pm


Alan G, regardless of his arguments to the contrary, facilitated the current housing crisis by:

1) Keeping rates low during a time that global risk spreads (credit and other (e.g., vol)) were at historic lows. We all knew risk wasn’t being priced rationally given the massive glut of liquidity available in the market (at the time).

2) Not caring one iota about bank supervision.

3) Believing arm-chair economists and econometricians (i.e., models) can provide the right answers and

4) Failing to understand the “incentives” created in most organizations to produce accrual earnings, not value.
Comment by Tootrue - August 14, 2008 at 2:51 am


The inescapable conclusion from reading the article is that Mr. Greenspan should have left the chairmanship of the Fed years before he did. His solution to the glut of unsold homes is the latest reason. The man is absolutely off his rocker… The best we can do at this point is to stop giving him a platform for his idiotic views on the economy.
Comment by Joe N - August 14, 2008 at 10:26 am


Greenspan, GO PLAY SOME GOLF!!!!!! You are completely overrated, just be glad that you managed to get away with it and leave the mess for someone else to clean up. You didn’t know what you were doing then, now is the time to keep your mouth shut.
Comment by T. Time - August 14, 2008 at 11:17 am

While readership may get a boost from a story like this, it does little to add to the Journal's prestige which is increasingly questioned since parent company Dow Jones was purchased by Newscorp.