Busted: Bankers and The Global Economy

April 9, 2008

Greenspan Gets It Rough

Filed under: banking, credit, federal reserve, money — Tags: , , , , , , , , — digitaleconomy @ 12:00 am

It must be rough when increasing numbers lay the blame for the current economic and financial mess at your feet. Alan Greenspan is blamed for easy money and lack of regulation. Mr. Greenspan thinks all the blame is unfair.

It is always easy to blame someone in hindsight. Second guessing and making interpolations is easy years down the road. The blame game is alive and well.

Alan Greenspan has been an international banker for years. He is not a lovely creature in the eyes of most. Unlike Bernanke, he is his own man within the limits of global corporate banking. Does past Fed policy make him responsible for the behavior of U.S. banking and mortgage bankers that broke the rules? Was the Fed responsible to enforce the rules?

Mr. Greenspan is not directly guilty of moral turpitude and banking avarice on a national level. President George Bush openly approved of the methods bankers were using. Accountability dictates that any blame must fall squarely on the shoulders of predatory bankers that hyped bad credit loans and sold fiscally unsafe banking derivatives to maximize profits. The result of banking derivatives has literally frozen the banking industry. The federal reserve had nothing to do with designing and marketing banking instruments for profit.

The frozen market full of fearful bankers created a major liquidity problem which in turn compounded the effects of the housing crisis. The federal reserve had to get involved in order to sustain the commercial bankers. If the bankers were able to use their liquidity without dealing with unsafe banking instruments, the industry would have been better able to cope with the crisis. The bottom line is that greedy bankers are reaping what they have sown.

The Fed is responsible for plenty of other oversights beyond commercial bankers’ and investors’ lust for money. Greenspan argues that the debacle was not caused by loose monetary policy from the Fed or lax regulation, but rather by collective foolish behavior of investors that could not be predicted.

Greenspan isn’t right either. The facts show that the mortgage debacle was created by the refusal of the government to enforce regulations and the collective foolish behavior of bankers, mortgage bankers, brokers, investors and borrowers. The list of people involved in this crisis is huge. The blame? Everyone that participated.

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1 Comment

  1. The Perfect Storm?
    Yesterday during an interview on CNBC Former Federal Reserve Chairman Alan Greenspan said: “…for the first time in my memory we’ve had both the banking system and the securities markets in trouble. Historically, it was always one or the other…” Could he be describing The Perfect Storm? If so, how could that not be catastrophic?

    Comment by RS — April 9, 2008 @ 8:32 am


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