Greenspan Day: It’s 1996 All Over Again.

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Could the launch of Alan Greenspan’s book be better timed? With so much is on hold today as the markets prepare for this week’s earnings and interest rate news, the release of The Age of Turbulence has basically called down a torrent of attention. It’s like Wall Street and the business press decided to turn up the way back machine and declare it 1996—the year Greenspan shocked the markets by using “irrational exuberance” in a speech to the American Enterprise Institute—all over again.
After the jump, we bring you an exhaustive—and we mean exhaustive—run through of the coverage.


Probably the best starting place is with the Wall Street Journal’s excerpts of Age of Turbulence. One treasure is his description of the psychology of capitalism. “The great "problem" inherent in capitalism [is] that creative destruction is often, and by a great many, viewed simply as destruction… Capitalism creates a tug-of-war within each of us. We are alternately the aggressive entrepreneur and the couch potato, who subliminally prefers the lessened competitive stress of an economy where all participants have equal incomes,” Greenspan writes. Yep, that pretty much sounds like an average morning at the DealBreaker Bunker.
The Journal floods the zone, as they say, with Greenspan coverage today. In addition to the excerpt, they run an interview with Greenspan by Greg Ip.
“Many people, including some former colleagues of yours from that period, believe the Fed kept interest rates too low for too long, thereby contributing to the housing bubble and problems in subprime mortgages. Do you agree?” Ip asks.
Interestingly, Greenspan agrees with the “too low, too long” charge. “We kept them too low for too long because we were effectively creating an insurance against [deflation]. The problem in making choices is that you recognize that if you miss, you can end up with interest rates too low, too long,” he replies.
Let’s Go To the Video Tape
Probably the next stop on a tour of the Greenspan publicity machine should be CBS’s “60 Minutes,” which aired a long interview with Greenspan. Leslie Stahl confronts Greenspan with the charge that he pushed interest rates too low for too long. His answer to Stahl takes a very different tact from his answer to Ip. Greenspan says basically that his critics under-estimate the dangers to the banking system and the broader economy in the early years of this decade.
"You raised rates in 2004. But only after you held interest rates at historically low level for three years, while the bubble, the housing bubble was forming," Stahl points out. "And that you had 13 rate cuts in that period of time."
"It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low," Greenspan says.
Back to the Journal. The Journal’s “Real Time Economics” page fact checks some of Greenspan’s claims in Age of Turbulence and finds that he’s been a little, uhm, creative with the historical record. But the evidence isn’t too damning. “[T]here are a few points where his assertions differ from the historical record or with his public statements at the time, though they do not change the overall story,” Real Time’s Ip writes.
Greenspan Spans The Globe
The Financial Times ran a big, above the fold story on Greenspan. In an interview, Greenspan makes lots of inflation hawkish noises and notes that he weighs the data differently from those such as economist Martin Feldstein who have called for aggressive rate cuts.
“You have got to be a lot more careful in lowering rates in response to crises, ” he says.
Greenspan also makes some dire predictions about the US housing market, telling the FT that the downturn is likely to be worse than many expect. “Mr Greenspan said he would expect ‘as a minimum, large single-digit’ percentage declines in US house prices from peak to trough and added that he would not be surprised if the fall was ‘in double digits,’” the FT’s Krishna Guha writes.
Newsweek is putting Greenspan on their cover this week, running another long interview. Perhaps the most interesting line Newsweek draws out of Greenspan is his ruminations on the “moral hazard/bailout/subsidy” question about Fed cuts. “To the extent that [the Fed] interferes with the economy, we do help some of the people who are involved in rather questionable financial activities. The problem basically is that if you do effective monetary policy and stabilize the economy, you will raise all asset prices—those that are assets owned by prudent investors, but also the prices of assets of those who have taken very silly risks and should be punished as a consequence. There is no simple solution. If we do something which works for the society as a whole, we will inadvertently and undesirably bail out, if you want to put it in those terms, the people who have taken silly risks,” Greenspan says.
The critics have their say.
One thing that seems certain is that the man once heralded as the Maestro of the markets has dramatically declined in popularity in recent years. He’s anything but the tephlon Fed chief these days.
We’re not too humble to point out that DealBreaker founder Elizabeth Spiers led the pack in the recent anti-Greenspan turn, aiming her poison pen directly at Greenspan in the September issue of Fast Money. In a rare note of optimism, Spiers writes: “As we head to the bookstore, maybe we'll have forgotten the subprime collapse that just a few months ago sent Bear Stearns scrambling to find $3 billion--the cost of bailing out its collateralized-debt-obligation-and-mortgage-backed-securities-heavy hedge funds.” To be fair, however, she quickly adds: “Maybe not.” Well, the verdict is in on that one and the answer is definitely not.
We’ve noted before that market turbulence makes strange bedfellows. But we never expected Portfolio to climb into the sack with Spiers, who has been one of the magazines fiercest critics. Nevertheless, Portfolio’s October issue contained a damning column by John Cassidy titled “His Fault.” And, in case that was too subtle, the subhead read: “Blame Greenspan for the credit bubble.”
The current turmoil on Wall Street is largely a result of policy decisions he made during his final years. By keeping interest rates too low for too long, he encouraged a borrowing-fueled speculative binge, which has now given way to a credit squeeze. By failing to crack down on the mortgage industry, he allowed subprime hucksters to peddle dubious loans, which the financial industry’s math whizzes packaged for investors,” Cassidy writes.
Brad Delong, writing in the Los Angeles Times, thinks the critics have it wrong. He writes that Greenspan’s tenure at the Fed constitutes “an amazing record.” By his count, Greenspan made 36 Fed substantive decisions about interest rates—and made the right call 35 of those times.
“Greenspan is world famous because he was very good and very lucky at this role,” DeLong says.
Is this thing still on? Here are some more links.
Bloomberg has flooded the zone with Greenspan coverage in the last couple of days, as Blake Hounshell Foreign Policy points out. Click here for his summary of Bloomberg’s coverage.
“The book is just boring, there is no reason to buy it, or so says my pre-lunchtime scan at Borders,” says Tyler Cowen at Marginal Revolution.
Bloomberg’s Caroline Baum agrees. “For someone who made headlines with his every utterance -- even if no one could agree on what he had said -- Alan Greenspan offers few newsmaking moments in his eagerly awaited memoir,” Baum writes.
Portfolio’s Felix Salmon says that Greenspan made the wrong call in two critical areas: deflation vs. inflation and budget surpluses vs. budget deficits. “In both cases, Greenspan advocated the wrong policy because he was worried about something which (a) never happened; (b) never even came close to happening; and (c) has pretty much never happened economic history, anywhere,” Salmon says. (Salmon is a bit obsessed with Greenspan lately. He’s got more posts here and here.)
The New York Times plays up Greenspan’s criticisms of President George Bush here.
While Bob Woodward in the Washington Post emphasizes a point of agreement: the need to oust Saddam Hussein.
Crossing Wall Street joins the ranks of the critics, focusing on Greenspan’s willingness to go beyond his area of core competence in public comments. “One of the aspects I didn't like of his tenure was how he made his views known on subjects not related to monetary policy. As I've said many times before, the Federal Reserve is far less important than most people realize. I think the fact that it's so secretive helps keep the illusion alive,” CWS explains.
Phew? Had enough. We’re done.

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