Interesting commentary on Greenspan

[Hookpunch]

And his running around trying to distance himself from the current financial crisis.

http://www.foreignpolicy.com/story/cms.php?story_id=4278

[Plognark]

Rugged. Seems like a fair criticism though.

[laughing dog]

Whether Greenspan can publicly admit it or not, he must know that he enabled this current situation.

[cape_royds]

I'd add a few more points to the Roach article:

1. Prolonged easy monetary policy encouraged a massive misallocation of capital into assets of little productive value. Were granite countertops and home theatres the most worthwhile way to employ large amounts of labour and materials?

2. Roach should have mentioned that in the mid-90's deliberate changes were made to the methods used to calculate consumer price indices, all of which had the convenient effect of understating inflation, and thus seeming to justify a permissive interest policy by the central bank.

3. Americans weren't stupid to quit saving during this period of loose money. The Federal Reserve was brutally punishing anyone who tried to save by conventional, frugal, means. Moreover, a price boom in such a necessary commodity as housing easily leads to panic buying--buying at a known disadvantage, out of credible fear that the future will be even less favourable for buying.

The panic buying during a boom is the counterpart of the panic selling which occurs during a bust. What I'm saying here is that many of the "subprime" borrowers were neither greedy nor stupid, just bewildered by an unprecedented rise in the price of housing, caused by central bank policies which they neither understood nor controlled.

[Hookpunch]

I'd add a few more points to the Roach article:

1. Prolonged easy monetary policy encouraged a massive misallocation of capital into assets of little productive value. Were granite countertops and home theatres the most worthwhile way to employ large amounts of labour and materials?

2. Roach should have mentioned that in the mid-90's deliberate changes were made to the methods used to calculate consumer price indices, all of which had the convenient effect of understating inflation, and thus seeming to justify a permissive interest policy by the central bank.

3. Americans weren't stupid to quit saving during this period of loose money. The Federal Reserve was brutally punishing anyone who tried to save by conventional, frugal, means. Moreover, a price boom in such a necessary commodity as housing easily leads to panic buying--buying at a known disadvantage, out of credible fear that the future will be even less favourable for buying.

The panic buying during a boom is the counterpart of the panic selling which occurs during a bust. What I'm saying here is that many of the "subprime" borrowers were neither greedy nor stupid, just bewildered by an unprecedented rise in the price of housing, caused by central bank policies which they neither understood nor controlled.

Cape, some good points. Actually I would like to find out more about 2 and 3 , these sound like good arguments against anyone trying to lay the blame on the sub-prime borrowers rather than the financial sector.

do you have any references?

Thanks

[cape_royds]

Quick and dirty references to both sides of the 1990's inflation debate:

1. The Wikipedia article gives the official line about why inflation calculating methodology had to be changed:

http://en.wikipedia.org/wiki/Boskin_Commission

2. The Shadow Government Statistics website gives a slightly overwrought critique of the Boskin process:

http://www.shadowstats.com/article/56

Note that Shadowstats also still tries to track the late lamented M3 (which measures growth of the total money supply) which, alone of the Western world's major central banks, the US Federal Reserve stopped publishing in 2006--just a year before the current financial crisis hit.