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The Irrelevance of Greenspan
Author: Bob Lang (info)
Website: http://trade-mentor.com
Posted: September 17th, 2007 at 5:54 am EST
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Former Fed Chairman Alan Greenspan will be getting a lot of airtime soon. He is promoting his recent memoirs titled The Age of Turbulence. To be certain, most pay close attention to the words of Mr Greenspan, not unlike the commercials back in the 70’s for a certain broker (when EF Hutton talks, people listen). But now that he is a private citizen…and with a variety of opinions…is it crucial that the public pay lip service to the former head banker? I would argue the importance of such a bold figure has become passe.
For seventeen years, Alan Greenspan steered the US economy…from good times into bad times..round and round. Through crises, his leadership at the Fed made for a more prosperous situation for most in this country. Productivity, growth and wealth were on the rise, while inflation was mostly contained. Even after the 9/11 tragedy, Greenspan took drastic measures to insure the Fed would be there provide the necessary liquidity should a shortfall occur. For the most part, his tenure at the Fed was deemed successful…under four different Presidents. Bravo, Maestro!
In early 2006, Greenspan passed the torch to Ben Bernanke, who once served under Greenspan at the Fed in previous years. While the apple may not fall far from the tree, Bernanke has tried to convey his own way of thinking at the Fed with some sort of transparency into his decision process. With the wide range of Fedspeak, the Fed has tried to be more forthcoming about their moves…more predictable than in the past. It’s too early yet to determine if they have been successful at this task.
Today we are faced with numerous issues (rising inflation, mortgage problems, housing recession, economic slowdown..to name a few) that may tip the economy into a recession, or possibly worse. The global economy is intertwined to the extent that if one country sneezes, everyone else catches a cold. Experts, economist, strategists..all make comments based on their ‘best-efforts’ view. They all want to be ‘right’, but incidentally..they reserve the right to be wrong. Even Mr Greenspan has a live microphone these days…back in February he predicted the US had a 1/3 chance of landing in a recession in 2007. This is hardly the case now, as growth for the 3rd quarter is still expected to be positive.
In listening to an interview on 60 Minutes Greenspan, in his opaque way, argued that he didn’t see the subprime issue becoming a problem until it was too late. In his words, he ‘didn’t get it’ until 2005. This from the man who cut rates and left them low for so long that it was nearly impossible to NOT be approved for a home loan at a ridiculously low rate. In fact, Greenspan encouraged homebuyers to get into ARM loans…to take advantage of low interest rates (which eventually reset at much higher levels later on). Call it misguided thinking, call it irresponsible advice…but should we really pay lip service to Alan Greenspan in 2007 and beyond? Is he beyond relevance? While he may be a brilliant thinker, his time in the spotlight has surely past.
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Bob Lang, Economics, Stock Market
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