Saturday, December 01, 2007

Greenspan, the arsonist!


Nayeri: But surely you will acknowledge that Greenspan saved the planet at crucial turning points?

Artus: Yes, but after the fact. He’s congratulated for his role as fireman, but he’s the one who started the fire.

Wow! That blunt judgment is from Patrick Artus, an economic adviser to the French government. Link via Paul Krugman.

Immediately preceding the section quoted above, Artus has these two observations:

Greenspan was an arsonist and a fireman combined. He derived all his glory from his reaction to the savings-and- loans crisis, to the collapse of Long-Term Capital Management LP, and to Sept. 11, 2001. But LTCM and the savings-and-loans crisis were his doing. He absolutely failed to see where the malfunctions in the U.S. economy were.

Greenspan came up with a phrase, ``irrational exuberance,'' in 1997, but he didn't do anything about it.

3 Comments:

  1. Rao said...

    Would be interesting to know how much of this is explained by hindsight bias.

  2. Daze said...

    This is going to sound wierd (as in how the heck did this guy get from this post to these questions)

    But what the hell, you sound like someone interested in these kinda things, so here goes...

    Do Fed Banks or Reserve Bannks or Central Banks or Finance Ministers (or all) look at real estate prices and currency exchange rates and factor them into their policy decisions? (since that would have probably helped out the subprime/dollar weaknening stuff going on)

    And if they do, in a country like India, how do you factor in diverse growth rates and pressure points into your policy? (I'm sure the impact of policy on different areas/socio-econoic classes is a factor even in developed counrties, but seems to me like the disparity and hence the difference in magnitude of impact is more severe in a country like ours....)

    Does that question even make sense or does it sound more obtuse than a straight line?

  3. Lekhni said...

    It's true, Greenspan then watched as the housing bubble grew. He used catchwords like "conundrum" but cut interest rates slowly, at 25 bps each time and watched the bubble grow.