Photo: The White House
There was a point when Alan Greenspan was known as “The Maestro,” the economic genius who authored the great boom of the 1990s.Even after the crash in 2000, maker players obsessively tried to suss out wisdom from the cryptic statements he would make to Congress.
Even when Alan Greenspan stepped down from Federal Reserve Chairmanship on January 31, 2006, he was still highly regarded.
He soon returned to economic forecasting, a role he enjoyed before entering government service in 1974.
Ever since then, he’s been slowly declining from informed-economic-commentator land to short-sighted irrelevance.
The worst is now. Greenspan has gone on the defensive and is now hesitant to admit he was wrong about the housing crisis and it’s badly hurting his reputation.
Most recently, he’s been delivering low blows to Michael Burry, a hedge fund manager who called the housing crisis back in 2005.
Just nine months after resigning, in November Greenspan announced, during a question and answer session at the annual Charles Schwab Impact conference in Washington, 'The economy is obviously going through a significant slowing period, which as best I can tell is more than likely temporary.'
On the potential adjustment in loan costs for home buyers with nontraditional mortgage products, he said:
While some individual buyers may feel the pinch as their payments rise, those changes were 'very unlikely to have a macroeconomic effect.'
In March 2007, Greenspan confirmed his positive outlook. He said there is only a 'one-third probability' of a US recession this year and the current expansion won't have the staying power of its decade-long predecessor.
'We are in the sixth year of a recovery; imbalances can emerge as a result,' Mr. Greenspan said in an interview with Bloomberg.
'10-year recoveries have been part of a much broader global phenomenon. The historically normal business cycle is much shorter,' he said.
In June 2007, Greenspan told the Sunday Business Post:
China is a bubble; it's ''unsustainable'' and a ''dramatic contraction'' is coming.
Today, China is still not (yet?) a bubble.
Source: Sunday Business Post
On 60 minutes in September 2007, Greenspan said he was aware of 'subprime' lending practices, he just didn't realise how much harm they could do.
'While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late.'
When the interviewer brought up the fact that one of the Fed's governors had actually raised a red flag about questionable lending practices, Greenspan responded:
'Well, it was nothing to look into particularly because we knew there was a number of such practices going on but it's very difficult for banking regulators to deal with that.'
Source: Chicago Tribune
In September 2007, the German magazine, Stern, interviewed Greenspan.
He told them, the dollar is still slightly ahead in its use as a reserve currency, but 'it doesn't have all that much of an advantage'' anymore.
'The euro could replace the U.S. dollar as the reserve currency of choice.'
(Of course the euro is now toast.)
Source: The Canadian Press
In November 2007, Greenspan said, was saying there is a 'less than 50-50' chance of a U.S. recession.
Source: National Post
Later in November 2007, Greenspan said in Olso: 'I have no particular regrets. The housing bubble is not a reflection of what we did, as it is a global phenomenon.'
'The decline in subprime-financed housing starts is over.'
'It went to zero and can't get any lower.'
Source: National Post
In June 2008, Greenspan was back on optimism. He said he had seen a pronounced turnaround in the markets starting in March 2008.
He told Bloomberg, the worst is over for the credit crisis, or should be soon.
He also said he sees a 'reduced possibility' of a deep US recession.
Of course the markets didn't really rally until March 2009.
Source: The Evening Standard
A few days after Lehman Brothers collapsed in September 2008, Greenspan said more Wall Street firms would fail.
He told ABC television, 'There's no question that this is in the process of outstripping anything I've seen, and it is still not resolved.'
He said the US government would try to avoid pumping in more taxpayers' money into Wall Street bailouts.
'We shouldn't try to protect every single institution. The ordinary cost of financial change has winners and losers.'
Now the Fed's allowing Lehman's failure has, in retrospect, largely been blamed for much of the recession.
This quote might be the worst yet.
In October 2008, Greenspan told Henry Waxman's House Energy and Commerce Committee in October 2008 that he was 'shocked' by the housing crisis.
'I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works.'
In September 2009, Greenspan told BBC that because human nature always reverts to 'speculative excesses' during a period of sustained prosperity, another global financial crisis is 'inevitable.'
He predicted that the next one 'will be different' and Britain will be hurt worse than the US.
In March 2009, Greenspan began arguing on the defensive.
He explained the cause of the housing crisis in a Fortune article, 'Alan Greenspan Fights Back.'
He argues: There was an 'excess supply of saving.' Combine low mortgage interest rates caused by that flood of capital with other factors--the incredible complexity of mortgage securitization, which no one fully understood, plus clueless rating agencies and the euphoric atmosphere of boom times--and that's how you get a housing bubble.
Greenspan has now resorted to calling out hedge fund manager Michael Burry.
Greenspan says Burry was just lucky when he predicted the housing crash. The real reason he probably said that is pretty transparent. Greenspan works as an adviser to John Paulson, who was the main 'I predicted everything' guy before Burry.
Burry responded in an op-ed.
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