Greenspan Fesses Up
Former Fed Chairman Alan Greenspan took his lumps last week before the House Committee on Oversight and Government Reform, which seemingly placed much the blame for our economic mess onto his 82-year-old shoulders. It’s called “blamestorming” — a frenzied assignation of blame, an answer to the question, “Who the hell did this?” while everything around us implodes. We’re not here to defend Greenspan. Surely his manipulation of interest rates, opposition to regulation and fanning of the subprime fires were causal factors in the meltdown. If the whole crisis were a weenie roast, he’d be the one with the big fork, puffy hat and “Kiss the cook” apron. But let’s not forget that — to continue the metaphor — he’d still be surrounded by ravenous, mustardsmeared gluttons grabbing hot dogs as fast as their chubby fingers would allow, cramming them into their mouths and selling the rest at a profit to the throngs at the edge of the party, themselves consumed with mad frankfurter lust. This one’s like Murder on the Orient Express: Everyone did it, from borrowers who overextended themselves, to lenders who signed off on bad debts, to the institutions who packaged and sold these time bombs, to the Masters of the Universe themselves who shuffled this paper around as if it actually was worth something. That didn’t stop Greenspan from passing the buck — not on to Fannie Mae and Freddie Mac, but to the very titans of the economy, the Wall Street banks — that are now crumbling to dust or devouring each other to retain some sense of solvency. This, even as the Republican members of the committee urged him to lay the frozen credit markets at the feet of Fannie Mae and Freddie Mac. That’s how blamestorming works. Of more concern to us is the timeline of the cave-in, who knew what and when did they know it? We’ve been writing about the impending subprime crisis and speculating as to its effect on the overall economy for more than a year. New York University economist Nouriel Roubini warned of the impending doom in September 2006. The New York Times was on it back in 2001, when the first wave of defaults hit the trailer-park market before Conseco filed Chapter 11. How is it that nobody who could do anything about it saw this coming? In that sense, Greenspan is guilty as charged. When housing prices outpaced inflation and income, Greenspan repeatedly fought regulation and lowered interest rates, until the only weenies left were the halfchewed ones repossessed from those on the fringe. Perhaps the man they called “The Maestro” really has had a change of heart. He told the committee that he “found a flaw” in his ideology, this more than three weeks after the taxpayers footed the bill for the last great weenie roast.
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