Portfolio has done an excellent job of avoiding further entries in our “DeathWatch” for the past month. First, it ran a Q&A with our editor (smart move!). Second, it stemmed the tide of staffers streaming out the door. Third, it revamped its web site. And fourth, in its latest issue, it’s publishing a sure-to-be-popular article by the talented John Cassidy arguing that the housing and Internet bubbles were caused by none other than our beloved Alan Greenspan (Post).
“I the-great-and-all-powerful-Oz created the housing and Internet bubbles because I wanted you to SUFFER!”
Why will the blame-it-on-Greenspan article be popular? Not because the thesis is new–it isn’t–but because it will provide everyone with yet another well-reasoned excuse to take no responsibility for their decisions. (That house you bought with zero down at the peak of the bubble? It was Alan’s fault! He gave those sleazy mortgage brokers low interest rate so they could bamboozle you into thinking “Adjustable Rate Mortgage” meant your monthly payments could only go down!).
It’s true that Greenspan probably did more than any other individual to keep the serial speculative frenzies of 1995-2005 alive–and this contribution should not be dismissed with an oh-never-mind. That said, the reason bubbles happen–and the reason they’ll keep happening until the end of time, Greenspan or no–is that, while bubbles are inflating, everyone loves them. They’re great for everyone: investors, executives, companies, jobs, the economy, politicians, the national mood.
If Greenspan had hiked rates in the fall of 1998 instead of cutting them, the economy and market would have crashed and millions of jobs would have been lost–and Greenpan would not not only have been fired but loathed. In 1998, despite “irrational exuberance,” it wasn’t clear that what was happening was a bubble–it just looked like it might be. So it’s not hard to understand why a similarly intelligent Fed Chairman in a similar position next time (read: Ben Bernanke, now) will make exactly the same decision again.