Alan Greenspan has written an itneresting piece in the Wall Street Journal. He confesses that after a half century of watching markets, well the FED cannot stop a bubble of speculation until it bursts of its own accord. This is another way of saying, no matter what I did at the FED after 9/11 it would not have worked. Of course he was glad to be on magazine covers after the 1987 Crash or the Hedge Fund debacle in 1999 and take credit. I however do believe that he is right. Thinking all financial problems can be solved by moving short term interest rates is folly.
He of course wants to absolve himself of blame for the current sub prime mess. His story is that the FED thought long term rates would rise once they started raising short term rates. He says that never happened.
Not true Alan. I pointed out that Fannie Mae is about to sell preferred stock for 8.25%, that sounds like a higher rate to me. True govt bond rates are down, and he grouses that there is nothing he could do about it. The truth is that holding short term rates so low so long allowed lots of builders and lenders to entice apartment dwellers to take on debt that should have been avoided. Now as he says, the only solution is to eliminate the backlog of unsold homes. Now he tells us.
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