Thursday, October 25, 2007

Marketwatch Nonsense About Greenspan & Housing Bubble

This marketwatch article seems promising if you just look at the headline "Roots of credit crisis laid at Fed's door". That is of course a statement of the all too obvious. There is no question at all that the Fed and Alan Greenspan is guilty. More specifically the blame must be laid at their senseless decision to cut interest rates from 6.5% to 1.75% in just one year, 2001, and then down to 1% in 2003, and then only raising it at a "measured pace" from the second half of 2004.

The problem is that the article doesn't in fact mention Fed interest rate policy at all, and instead focus on the irrelevant side issue of Fed regulation of banks. It is telling that the article doesn't even mention what kind of regulation the Fed should have enforced and would have prevented the bubble.

To make matters worse, the article quotes Greenspan writing in his book something unusually confused even for him.

"In his recent autobiography, Greenspan said when he accepted the top Fed job, he worried that his Ayn Randian brand of libertarianism would make it difficult to be a bank regulator and said he planned to allow others at the Fed to take the lead."

Say what? If one really believes in the "Ayn Randian brand of libertarianism" and interprets this as resistance to regulation of banks, why is it a problem if it results in less regulation? And if one believes lack of regulation is a problem then why is it a problem to enforce it.

While financial journalists often present misleading analysis, this one, Gregg Robb, is unusually confused. It overlooks the key issue of interest rate policy and instead focus on the irrelevant issue of regulations they can't even specify. And then he presents the confused rantings of Greenspan where he thinks he has some kind of psychological problem in pushing through a policy he believes is right, as some kind of argument for this still unspecified policy. Puh-lease......


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