Greenspan… mea culpa… almost!
For 18 years, investors hung on his every word. As Chairman of the US Federal Reserve, Alan Greenspan could move markets. A slight inflection of the voice, a hint of this or that, and the price of shares shot up or down.
This was the Master of the Universe. Our universe. He strutted his stuff as if he knew what he was doing. And yet…
In his self-serving memoirs, Greenspan claimed that the problem was with the theoretical models they used. He wrote: “The models never forecast recession, because the parameters are dominated by what happens in normal times when the economy is growing”.
What’s “normal”?
The tools used by Greenspan were useless. Like the weather forecasters, they told us the obvious – the sun’s shining (look through the window)…the economy’s growing (look at the flow of people through the shopping malls).
But now we are given a glimpse into the tortured mind of this soul. He is shocked by the collapse of the banks. His work-view is in pieces. “I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms…I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works”.
This is mea culpa with knobs on! And yet, he would only admit to “partial” blame. He was more interested in telling the US Congress about his state of mind: “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity (myself especially) are in a state of shocked disbelief”.
Where’s the Apology Alan?
But bankers were looking after their interests. They ran riot over the money system because central bankers like Greenspan – the stewards of the public’s welfare – failed to discharge their responsibilities.
Greenspan may be suffering from shock. Many millions of others are suffering something far more substantial – losing their homes and jobs. And all this because one man – Alan Greenspan – clogged his mind with damaging doctrines that do not reflect the real world.
Wouldn’t it be uplifting if this man offered an apology without qualification? That would enable us to start living properly by embracing sensible economic policy. Any takers?
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Alan Greenspan embodies all that is wrong with mainstream economics and economists, I almost get the sense that he wills things to go wrong so then central bankers can come riding to the rescue with charts, graphs and overly complicated economic strategy.
One passage I remember clearly from his book describes how that now we live in a world of perpetual low interest rates it was ok that the U.S had a land boom as the former would offset the latter. If he perhaps developed this thought a little further he would have seen that only land speculators benefit from this set up, leaving the future risk of higher interest rates to fall upon the taxpayer when things derailed.
Astute people who have studied the weather forecasts have noticed that the experts only get it right 45% of the time. They have also observed that if someone were to say: “the weather will be the same as it was yesterday”, they would get it right 55% of the time. All that Greenspan’s economic model needed to say was that the next depression will be much the same as the last depression, caused by the same bubble of land and property speculation… Then everyone would have regarded him as a genius!