Wikinvest Wire

The number one zero

Friday, December 12, 2008

Not much has been heard from former Fed chief Alan Greenspan since he testified before Congress a month or two ago on the subject of financial derivatives when he famously noted he "found a flaw" in his understanding of how the world works.

This "flaw", where financial market participants were mistakenly assumed to usually do what is in their own best, long-term interests, is now understood to be largely responsible for the current predicament the world now finds itself in.

The year-end reminiscing for what has been an awful year in so many ways, about to kick into high gear in the days ahead, is not likely to be kind to the one they once called Maestro, his reputation having become more and more soiled with each passing week and each new bailout or bankruptcy.

A look at what lies ahead was provided at CNN/Money earlier today where he led the short list of "zeros" in a list of eleven "Heroes and Zeros".

Bubbles are disastrous for the economy. Apparently the bespectacled economist never learned this lesson during his 18 1/2 years running the Fed.

It's hard to imagine any single person more responsible for the biggest financial crisis to hit this country since the Great Depression. Let's review: Greenspan helped inflate the housing bubble by keeping short-term interest rates too low for too long. He did the same thing in the late 1990s, helping to fuel the dot-com bubble. He pooh-poohed attempts to regulate complicated derivatives, those exotic financial contracts that provided cover to lenders pocketing extraordinary profits by issuing reckless home loans.

When testifying on Capital Hill this fall, Greenspan blamed today's financial crisis on "a once-in-a-century credit tsunami." A sincere apology might have been more appropriate. --L.O.
Some say this was far too kind an assessment.

4 comments:

Anonymous said...

They also forgot to say he supported the tax cuts that helped create today's unpayable fed debt load, and told people to take out variable home loans.

dearieme said...

Do you suppose he was a "sleeper" for the KGB? No, neither do I, but he probably did far more damage than any sleepers they had installed in the USA.

Anonymous said...

Here's an article in Vanity Fair that, to your point, highlights the "flaw" as why we are where we are.

http://www.vanityfair.com/magazine/2009/01/stiglitz200901

And I think that's what infuriates my the most. Someone who claims to be a free-market kind of guy uses the most potent monetary tool on Earth (the Fed), and then wonders why it all went wrong. No wonder liberals are having a field day with this.

Tom I said...

Greenspan discovery of 'flaw' won my Joke of The Year award. It is like discovering wars kill people after the war have been fought.

Let me give him a hint on how to win same award for 2009:

Americans do not work for the interests of America.

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