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Home Publications Blogs Beat the Press Mr. Incompetent, the Economy Wrecker Alan Greenspan, Was Central to the Formation of the Campaign to Fix the Debt

Mr. Incompetent, the Economy Wrecker Alan Greenspan, Was Central to the Formation of the Campaign to Fix the Debt

Monday, 24 December 2012 17:36

Alan Greenspan will go down in history as the person who has done more damage to the U.S. economy and society that anyone who was not a foreign enemy. In fact the destruction he wreaked through his incompetence would also exceed the damage caused by almost all would-be enemies as well.

Greenspan accomplished the remarkable feat as Fed chair of ignoring the growth of the $8 trillion housing bubble. This bubble could not have been easier to see if it had been 500 feet high and lit up with huge neon signs saying "Huge Housing Bubble." But Greenspan insisted the bubble was not there.

And Greenspan somehow didn't recognize that the collapse of this massive bubble would devastate the economy. The bubble was generating over $1 trillion in annual demand through its direct impact on housing construction and its indirect impact on consumption through the housing wealth effect. This demand would inevitably disappear when the bubble burst, leaving a huge hole in demand.

Did Greenspan think that the private sector had some magic formula to replace this demand? What could he have been thinking or smoking?

If we had a political debate that was driven by evidence, where the accuracy of one's past judgements played any role in the credibility granted their current opinion, then Greenspan would be relegated to the role of ranting fool. His opinions on the economy would be given slightly less credibility than the mumblings of a street drunk.

This is why it would have been worth highlighting the news contained in a NYT article on the origins of the "Campaign to Fix the Debt," the corporate financed effort to reduce the deficit. The article tells readers in passing:

"The Campaign to Fix the Debt started to come together at a salon dinner held in the backyard of Senator Mark Warner, Democrat of Virginia, in the fall of 2011. An influential group of economic, political and business leaders — including the former Federal Reserve chairman Alan Greenspan and Mark Bertolini, the chief executive of the Aetna insurance company — huddled in a too-small tent in the pouring rain."

This is such an amazing tidbit that it really should have been the lead of the article. The person most responsible for wrecking the economy -- and incidentially adding trillions of dollars to the debt -- was there at the founding of the Campaign to Fix the Debt.

Wow, what did Santa get you for Christmas?


Comments (23)Add Comment
written by Zinc, December 24, 2012 5:35
Well, at least he's not spouting that Rand nonsense anymore.
Santa? a lump of coal
written by JDM, December 24, 2012 7:59
Santa brought me a downturn in my portfolio as a bunch of idiots in the stock market reacted to the bogus "fiscal cliff" issue by selling in a panic.
inscrutably wise
written by Chris, December 24, 2012 9:52
I recall well how for years Greenspan's meaningless babble before the Congress was treated as the inspired utterances of a preternaturally wise oracle and scrutinized and dissected endlessly for the profound wisdom it was certain to contain. Then the collapse of 2008 unmasked the wizard of the Fed for the fraud that he was and his reputation vanished in a puff of smoke.
written by Union Member, December 24, 2012 10:45

My kingdom for a whistle.
Powerful, Influential
written by James, December 25, 2012 3:02
The more powerful, the more influential you are, you can always fall back on the "Who could have known" line if you made any huge oversight.

This doesn't work for someone who are working for a living though.

However, Sen. Lindsey Graham eloquently said recently about Ms. Rice: "If she doesn't know, she SHOULD HAVE KNWON." She is woefully inept then (paraphrase).

So, Greenspan SHOLD HAVE KNOWN???
written by Mary Bess, December 25, 2012 3:47
Thanks for all the informative articles over the past year, Dean Baker. Always look forward to your latest.
Greenspan - savant idiot
written by Michael M Thomas, December 25, 2012 8:34
I a piece I wrote for Forbes.com back in the fall of '08, I described Greenspan as "a savant idiot," by which I meant a person who sounds wise but is in fact spewing idiocy - what in Shakespeare's day was called "claptrap to catch the groundlings." In other words, the reverse of "idiot savant". I had met Greenspan at a lunch back in the '70s, and after listening to him for twenty minutes, decided he was a complete charlatan mouthing total BS. Dean Baker's assessment is spot on. The crooks who run Wall Street are bad enough, but fakes like Greenspan have caused irreparably greater damage. Of course, you need an audience of dolts to put over this stuff.
people run countries
written by annunaki, December 25, 2012 8:47
and how are people appointed to positions of power?

basically to be someone in position of major power you have to be jewish - almost everyone at the fed - the most powerful organization that is not answerable to anyone - is jewish - even the replacements for the fed chairmen are always tribal.

as Mancur Olson said small tribal groups will eventually take over open societies.
written by cy klebs, December 25, 2012 9:22
I thought that A Greenspan stopped the 2005 Bush plan to deform SS!
Don't forget the Bush tax cuts
written by ddoubleday, December 25, 2012 11:43
Which he gave support for by publicly worrying that we might otherwise pay down the debt TOO QUICKLY.
No James
written by Chris, December 25, 2012 1:31
The situations of Rice and Greenspan are not at all alike. Rice had to rely upon what the intelligence community gave her. She had no brief to question that. But Greenspan was supposed to be the brains re the economy himself, so he, unlike she, has no excuses.
Firing Alan Greenspan
written by Calgacus, December 25, 2012 2:41
Michael M Thomas: Seen this piece by Michael Hudson?

Firing Alan Greenspan

written by JDM, December 26, 2012 3:05
"Rice had to rely upon what the intelligence community gave her. She had no brief to question that."

Come on.

They gave her briefing papers entitled "Bin Laden determined to strike in the USA" about hijacking airplanes. She also had info about airplanes being used to ram buildings. From that she said she had no way to know that these things could happen.

Now Greenspan is foolish in the ways and for the reasons you say. The sad part is that his reputation has not "vanished in a puff of smoke". The proof of that is that he is still making news in campaigns like the one Dean is talking about, campaigns that look like they're working, to our detriment.
written by scottinnj, December 26, 2012 7:08
I think Matt Taibbi, molotov cocktail extraordinaire, at Rolling Stone had the better description for Mr Greenspan - not Mr Incompetent but the "One-in-billion [jerk] (Taibbi didn't call him a jerk, but this is a family blog so I won't use the actual phrase)

"BAD POLITICAL SYSTEMS on their own don’t always make societies fail. Sometimes what’s required for a real social catastrophe is for one or two ingeniously obnoxious individuals to rise to a position of great power—get a one-in-a-billion *[jerk] in the wrong job and a merely unfair system of government suddenly turns into seventies Guatemala, the Serbian despotate, the modern United States. Former Federal Reserve chief Alan Greenspan is that one-in-a-billion [jerk] who made America the dissembling mess that it is today.
written by Bosco, December 26, 2012 8:09
JDM, the "Rice" Chris and James were talking about is Susan Rice, not Condaleeza.
Greenspan's Body Count
written by ted, December 26, 2012 9:07
A grim record of Greenspan's carnage:

written by Ben, December 26, 2012 10:37
Isn't it a bit ironic that if he'd stuck to his Randian beliefs then much of this wouldn't have happened? It was only when he abandoned free market Randian ideals and began meddling with the economy from the Fed that this happened.
written by Postkey, December 26, 2012 11:18
Not only Greenspan?
"BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though."

"BERNANKE: I am more sanguine about derivatives than the position you have just suggested. I think, generally speaking, they are very valuable… With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly. The Federal Reserve’s responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well-managed and do not create excessive risk in their institutions."
SUSAN Rice not Condi
written by Chris, December 26, 2012 11:23
JDM: We were talking, at least I was, about SUSAN Rice, not Condi Rice. Don't confuse the two.
written by Donald Isenman, December 27, 2012 5:02
Greenspan has always been and still is a crook for hire.
written by Brian Dell, December 27, 2012 5:04
Bernanke has long been known as an advocate for ignoring asset prices such that it does not seem fair to single out Greenspan on this point.

More importantly, however, when it comes to the size of the government deficit in 2007 versus 2012, Dean wants us to believe that there is a large negative output gap in 2012 but no significant output gap on the positive side in 2007 that would render 2007's relatively small deficit unsustainably small.

Which is it here? Either the economy was running well ahead of potential of 2007 in which case both Greenspan should be faulted for excessively easy monetary policy and the deficit was artificially small OR the economy was running near potential at that time in which case it was less than obvious at that time that monetary policy was not appropriate.
Greenspan skeptics
written by John Wright, December 28, 2012 1:50
There were two long term Greenspan skeptics in Alan Abelson of Barron's and Pierre Rinfret.

As discussed in the Michael Hudson article referenced above, Rinfret found that Greenspan's consulting firm was going under as Greenspan got the Fed job.

It is unsurprising that Greenspan did fairly well for his personal wealth by catering to Wall Street during his Fed tenure.

After all he needed the money.

Also I remember when Barrons' Abelson was astonished when Greenspan encouraged home buyers to get adjustable rate mortgages rather than fixed rates.

Greenspan advocated this in a February 23, 2004 speech.
" Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward."

And Barrons has a March 3, 2008 article titled "That Bubble-Brained Fed Chief".

Also see http://www.slate.com/articles/...erous.html

And while Bernanke may have an academic professional reputation to attempt to salvage, that did not apply to Greenspan.

One must not forget that Greenspan WAS competent in becoming wealthy after his got his quasi-government FED job.

But the problem really lies in the slavish news media, businesses interests and government officials that promoted him as "the Maestro".

Good thing there is a "Beat the Press".
Richard Wolff gets the causes of the problem right
written by Richard Karpinski, December 28, 2012 3:16
I liked many of the YouTube videos and articles put out this year by Richard Wolff, regardless of what label you put on him:


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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.