Difficult not to agree with your piece. i would add that the last part of the 90' was a tough one with the Asian crisis, Russian default, LTCM. and then came 9/11 in 2001. Lastly the consequences of the real estate collapse, to which is difficult to extrapolate Greenspan's contribution, were felt more by over leveraged dealers (Bear Stearns, Lehman Brothers, etc....) than by banks themselves. and you are spot on on the moral hazard issue. Anyhow that FED was a different one, i was about to say a better one.
Chairman Greenspan was put in a difficult spot by Long Term Capital Management...er mismanagement. The smartest guys running LTCM were Nobel recipients Myron Scholes and Bob Merton. John Meriwether came over from Solomon Brothers. They leveraged LTCM into bankruptcy. In 1998, LTCM equity was $4.7 billion and over time, borrowed over $125 billion, yielding a debt-to-equity ratio of 26.6 to1. The worst part, LTCM"s off-balance sheet derivative positions were approximately $1.25 trillion, most of which were in interest rate derivatives and equity. When Scholes, Merton and Meriwether faced a liquidity crunch, they turned to the lender of last resort in the person of Alan Greenspan. At the time it was assumed LTCM's collapse would seriously damage global financial stability. Chairman Greenspan facilitated a private sector bailout, where a consortium of banks and financial institutions ponied up $3.6 billion to stabilize LTCM. How could the smartest guys in the room not understand that a 2% move market move against LTCM would wipe them out?
“Alan Greenspan died today at age 100. I knew him a little. There’s so much to say about him, most of it good.”
We should all be so fortunate to have those words spoken about our lives.
Living to 100 years old (if in good or mostly good health) is worthy of celebration; as is the fact that people have mostly good things to say about our work and our contributions in general (especially if we were acting in the sphere of public interest).
"Moreover, if the Fed was the culprit, why was the housing bubble world-wide?"
Doesn't that also apply to this quote?
"But to the extent that the federal government is to blame, the main fed culprits are the beefed up Community Reinvestment Act and the run-amok Fannie Mae and Freddie Mac. All played a key role in loosening lending standards."
IANAE. I had always heard the cause of the US 2007-2008 housing bubble crash was the federal policy (NOT the Fed policy!) of forcing increased mortgage lending to the less qualified riskier buyers. I had also not known that the housing bubble was world-wide.
FWIW, I agree that Greenspan doesn’t deserve the lion’s share of the blame for the housing bubble.
And in particular I agree that his contribution to low interest rates deserves minimal “blame share”.
But the moral hazard of bailouts - which you yourself acknowledge to have been a contributing factor - that “Greenspan put” *does* deserve the biggest share of the blame for.
And therefore your “Don’t blame Greenspan” claim doesn’t hold up that well.
Even though I think all the rest of your words *do* hold up quite well.
I said only he deserves the biggest share of the “moral hazard of bailouts” component of why we had the housing bubble.
But agreed that said component is only a minority factor (albeit not a small one) in the housing bubble.
I also believe that on actual bailouts, most of what Bernanke and Paulson and Obama / Geithner did in 2008-2009 was worse than any bailout Greenspan actually did.
But he pretty much unilaterally got that bailout moral hazard ball rolling.
Difficult not to agree with your piece. i would add that the last part of the 90' was a tough one with the Asian crisis, Russian default, LTCM. and then came 9/11 in 2001. Lastly the consequences of the real estate collapse, to which is difficult to extrapolate Greenspan's contribution, were felt more by over leveraged dealers (Bear Stearns, Lehman Brothers, etc....) than by banks themselves. and you are spot on on the moral hazard issue. Anyhow that FED was a different one, i was about to say a better one.
Chairman Greenspan was put in a difficult spot by Long Term Capital Management...er mismanagement. The smartest guys running LTCM were Nobel recipients Myron Scholes and Bob Merton. John Meriwether came over from Solomon Brothers. They leveraged LTCM into bankruptcy. In 1998, LTCM equity was $4.7 billion and over time, borrowed over $125 billion, yielding a debt-to-equity ratio of 26.6 to1. The worst part, LTCM"s off-balance sheet derivative positions were approximately $1.25 trillion, most of which were in interest rate derivatives and equity. When Scholes, Merton and Meriwether faced a liquidity crunch, they turned to the lender of last resort in the person of Alan Greenspan. At the time it was assumed LTCM's collapse would seriously damage global financial stability. Chairman Greenspan facilitated a private sector bailout, where a consortium of banks and financial institutions ponied up $3.6 billion to stabilize LTCM. How could the smartest guys in the room not understand that a 2% move market move against LTCM would wipe them out?
And the awful part of that is that Warren Buffett had made an offer but LTCM rebuffed it. (pun intended)
LOL!!
“Alan Greenspan died today at age 100. I knew him a little. There’s so much to say about him, most of it good.”
We should all be so fortunate to have those words spoken about our lives.
Living to 100 years old (if in good or mostly good health) is worthy of celebration; as is the fact that people have mostly good things to say about our work and our contributions in general (especially if we were acting in the sphere of public interest).
"Moreover, if the Fed was the culprit, why was the housing bubble world-wide?"
Doesn't that also apply to this quote?
"But to the extent that the federal government is to blame, the main fed culprits are the beefed up Community Reinvestment Act and the run-amok Fannie Mae and Freddie Mac. All played a key role in loosening lending standards."
IANAE. I had always heard the cause of the US 2007-2008 housing bubble crash was the federal policy (NOT the Fed policy!) of forcing increased mortgage lending to the less qualified riskier buyers. I had also not known that the housing bubble was world-wide.
So what really did happen?
I don't have a good answer.
FWIW, I agree that Greenspan doesn’t deserve the lion’s share of the blame for the housing bubble.
And in particular I agree that his contribution to low interest rates deserves minimal “blame share”.
But the moral hazard of bailouts - which you yourself acknowledge to have been a contributing factor - that “Greenspan put” *does* deserve the biggest share of the blame for.
And therefore your “Don’t blame Greenspan” claim doesn’t hold up that well.
Even though I think all the rest of your words *do* hold up quite well.
I overstated slightly.
Having said that, no, I don't think Greenspan comes close to deserving the biggest share of the bailout factor.
We agree.
I said only he deserves the biggest share of the “moral hazard of bailouts” component of why we had the housing bubble.
But agreed that said component is only a minority factor (albeit not a small one) in the housing bubble.
I also believe that on actual bailouts, most of what Bernanke and Paulson and Obama / Geithner did in 2008-2009 was worse than any bailout Greenspan actually did.
But he pretty much unilaterally got that bailout moral hazard ball rolling.