Allen Greenspan makes the Top 10 culprit List
With a twenty year stint under his belt, Allen Greenspan is the second longest serving chairman of the Federal Reserve. The only chairman to serve longer was was Republican, William McChesney Martin, Jr., appointed by Harry Truman. Greenspan was appointed by Reagan and continued to serve under Clinton and both Bush's.
As chairman, Greenspan had power to rock the financial world by determining interest rates. He was widely praised for his use of raising and lowering interest rates to encourage investments and discourage inflation after the dot com bust and again after 9-11.
Greenspan seemed to be on a roll, helping put millions of Americans into homes with low cost or adjustable rate mortgages. Peter Schiff, who owns his own mortgage firm, was an early critic of Greenspan. The "teaser rates," as Schiff calls them, were artificially low and painfully temporary. When the adjustable rates "adjusted", they adjusted up—way up. According to Schiff, Greenspan should have easily seen that day coming. The nation was essentially deluded into thinking they were richer than they were. Even when he was warned about the trouble in the sub-prime market, Greenspan was convinced that general market forces were strong enough to keep the situation from exploding and that more regulation of Wall Street was unnecessary.
Economist Mark Zandi gives Greenspan the benefit of the doubt. He believes that Greenspan thought low interest rates would stimulate home ownership and thereby put the economy on the path to recovery. Zandi concludes that Greenspan had a decent plan, but the plan just didn't work.
The truth is that Allen Greenspan has done a respectable job for the major part of his appointment. His track record is pretty solid. He has made more good decisions than bad. He wouldn't have made it through five presidencies if he wasn't performing well.
Some have blamed the collapse on a "perfect storm." I prefer to call it the "recipe for disaster." Certain negative ingredients came together in just the right recipe and the result was disastrous for our economy. Our nation's financial market is so deep and long and wide that it would be impossible for all the participants to check in with each other before making a move or to play out every decision to the degree that the result would be perfectly predictable. Can you keep track of a drop of water once it leaves your finger and plops into the ocean? If so, Alan Greenspan would most assuredly step aside and let you have a go at running the Fed.
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exit Allen Greenspan go to mortgage home page
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