Greenspans Bubbles The Age of Ignorance at the Federal Reserve

Greenspans Bubbles The Age of Ignorance at the Federal Reserve

No matter who you are-investor, trader, homeowner, 401(k) holder, or CEO-you are bound to feel the impact of Alan Greenspan’s �Age of Ignorance� for years to come.

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According to MSN Money columnist William A. Fleckenstein, Greenspan’s nearly 19-year career as Federal Reserve Chairman is even worse than anyone imagined. Labeled �Mr. Bubble� by the New York Times, Greenspan was nothing less than a serial bubble blower with a long history of bad decision-making. His famous �Greenspan Put� fueled the perception of a Goldilocks economy-but, as this explosive expos� reveals, the bear has finally caught up with Goldilocks.

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Using transcripts of Greenspan’s FOMC meetings as well as testimony before Congress, this eye-opening book delivers a timeline of his most devastating mistakes and weaves together the connection between every economic calamity of the past 19 years:

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• The stock market crash of 1987.
• The Savings And Loan crisis.
• The collapse of Long Term Capital Management.
• The tech bubble of 2000.
• The feared Y2K disaster.
• The credit bubble and real estate crisis of 2007.

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Fleckenstein explains just how far-reaching Greenspan’s mess has been flung, and presents damning evidence that contradicts the former Fed chief’s public naivet� concerning shifts in the market and economy. He also points to a disturbing fact, that throughout his career, Greenspan not only made costly mistakes, but made the same ones-over and over again. And not only was he never able to recognize or admit to those mistakes, he constantly rewrote his own history to justify them.

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Greenspan’s Bubbles offers a lock-stock-and-barrel portrait of a flawed but fascinating man whose words and actions have led a whole generation astray, and whose legacy will continue to challenge us in the years ahead.

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User Ratings and Reviews

3 Stars Greenspan to Blame
I’ll go about half way with the reviewers here. Greenspan certainly created a moral hazard in (engineering) the bailout of LTCM. Then, his interest rates, while not causing the housing bubble, certainly made things worse. Overnight interest rates didn’t hit rock bottom until late 2002-early 2003, nearly six years after houses began rising. Houses didn’t pick up steam, however, until 2000 - still three years before the Fed went negative with rates.

While it’s true that (long-term) mortgage rates are set by the free market, the Fed’s short-term rates affect these. Their low rates made it attractive for downstream banks to lend, *overlend* that is. Why not, when you can borrow low and sell higher ? Then, when Greenspan raised interest rates - sharply I might add, he put the screws on those who took out adjustable rate mortgages.

So Greenspan fumbled two big things, already. But there’s more. The icing on the cake was when Greenspan - and the Fed at large - did not regulate banks like they were suppose to. They “didn’t know” what percent of mortgage originations were subprime. And they didn’t check big bank’s “off balance sheet” securities.

I gave the book only three stars because the author goes too far and blames Greenspan for things he wasn’t responsible for. But it’s still a good read for the things that *are* true. Alan Greenspan was probably the worst chairman in the history of the Federal Reserve……

2 Stars pretty shallow
I gave up somewhere in the middle of chapter four. It was just contrasting FOMC comments with Greenspan’s public comments. Anyone that follows markets at even a blog level is already aware of all this. I was hoping for something more in depth about the Fed actions and HOW it affected the economy (not just that bubble boy cut rates and the Nasdaq doubled. We already know this).

2 Stars Unconvincing and unhelpful
I distrust the Federal Reserve system, and I think that Greenspan’s easy money policies predictably harmed responsible investors, but I did not find sound reasoning to confirm those suspicions in Greenspan’s Bubbles.

Fleckenstein makes his subject material accessible to the layperson, but only by presenting a shallow and extremely one-sided viewpoint. He offers little economic insight, and proposes no genuine practical solutions. He exploits the selective memory of angry investors seeking a scapegoat for their losses, who might conveniently fail to recall Greenspan’s famous “irrational exuberance” speech of 1996 or his Fannie & Freddie warning of 2004.

The picture that the book paints of Greenspan’s chairmanship is at least as vague and inconsistent as any picture that Greenspan ever painted of the economy. Moreover, it relies too much on its own questionable selection and interpretation of Greenspan’s statements in order to vilify him.

Graphs and data in general are misused, because no attempt is made to demonstrate that conditions such as they were could have existed only in proximity to a crash. I suspect that one could have used the same methodology in 1960 to construct a similarly compelling stock bubble assertion, and no such crash materialized.

The importance of avoiding bubbles is repeatedly overstated. Everyone has heard the folklore that the 1920’s stock bubble caused the Great Depression, but the prevailing view among economists is that the government’s inept reaction to the ensuing crash played a huge role. Bubbles are certainly costly, but we have to weigh that against the cost of avoiding them, which is grossly understated here.

Indeed, Greenspan did err frequently, and we would prefer that the Fed’s leadership were perfectly infallible and transparent, but God isn’t available for the job, and he too is said to work in mysterious ways. We can quibble over whether the actual inflation rate under Greenspan was 3% or 4%, but we can all agree that it doesn’t come close to the 9% that it averaged under Arthur Burns.

Still, there is probably a kernel of truth here. Unfortunately, rather than presenting a reasonable, balanced case that even without the benefit of hindsight the Fed should have acted differently, Greenspan’s Bubbles resorts to scapegoating and demagogy.

5 Stars Fleck predicted the crisis
I’ve read Fleck since 2001. His insights into the market have been the most useful of anyone around. Sometimes I think he is the only honest guy who works in the world of finance. Actually, I would add Fred Hickey, Jim Rogers and Marc Faber to the list of honest market commentators.

Fleck has saved my family from a lot of financial pain as we were able to avoid the financial crisis.

In this book, he attacks Mr. Greenspan’s revisionist history. It was a gutsy book to write as the Federal Reserve and the dollar standard is at the core of America’s power.

As America starts to ratchet up the printing press you need to understand and pay attention to the Fed. This book is a good primer.

5 Stars HOISTED ON HIS OWN PETARD
This is an excellent little book that doesn’t drown the reader in financial gobbleydigook. Instead, the author, who clearly is not and never has been a fan of Greenspan, let’s his bete noir hang himself with numerous quotes that show beyond any doubt what a clueless, if not spineless, wooley headed theoretician Greenspan was. Of course, we have the pudding he cooked to taste now, and it’s pretty foul. But it shows how powerful PR and propaganda is in bolstering the reputation of a man who never deserved one tenth of his accolades a a brilliant and wise Federal Reserve Chairman. He was to Bernanke what Bush was to Obama, the creator of a God-awful mess who is desperately trying to revise history. What impressed me the most was how often Greenspan defended his inability to predict bubbles; his only approach was the same of a doctor at an autopsy; “Well, whatever it was, it was fatal.”

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