(Alan Greenspan - entering into that strangest of trysts, Politics and Economics)
With the latest "mea culpa tour" of Former Fed Chairman Alan Greenspan, I found myself listening to a program, originally broadcast by ABC Radio National in Australia on August 17, 2005, where the discussion centered on a previous economic crisis; the 2001 economic meltdown between Peter Hartcher of The Sydney Morning Herald, Paul Kasriel formerly of the Federal Reserve Bank of Chicago and Late Night Live host Phillip Adams. Certain eerie parallels come to mind.
Peter Hartcher (Sydney Morning Herald): “He (Greenspan) was gearing up to do something about it (the bubble). He could see that it was way out of line, he could see that it was about to . .that it was carrying up the economy up to great heights, it was going to burst and the economy would be dashed to the ground, we’d be in recession, everyone would lose their money. He saw it unfolding exactly as it was going to, and we know that because we have the minutes of the Feds secret meetings, they published in full five years later. And he even went so far as to begin to warn about it, and you’ll remember he gave a famous speech where he said the markets were entering a period of ‘irrational exuberance’. But then something funny happened. After he gave that speech markets around the world took a tumble. But then Greenspan stopped on that agenda. He stopped warning about the bubble, he stopped shaping up to do something about it, and he switched and went over to the other side and became a cheerleader. Now, really the question you’re asking is why did he do that? What changed? And the short answer is, he played the politics, not the economics.”
Needless to say, hindsight is always 20/20, but this was clearly a matter of not learning from mistakes, or caring not to pay attention to them.
In either case, the Big One showed up on our doorstep three years later and the media went into overtime with hand-wringing. Nobody, it seemed learned anything.