Recent criticism of the form Federal Reserve Chairman, Alan Greenspan, has ignited a storm of protest from Mr. Greenspan. Essentially in the form of "no I didn't," his protests sound a bit hollow when compared to the record. Unless, of course, he is given the benefit of being thought a fool. Only then can one find cause to lay the blame elsewhere.
Greenspan has been attacked for taking interest rates too low earlier in this decade, and he is also blamed for failing to act on the large number of high risk sub-prime and adjustable rate mortgages being written. He claims he was unaware of either the housing bubble or the potential mortgage meltdown from a combination of sub-prime and adjustable mortgages.
According to the Federal Reserve's website (The Federal Reserve System: Purposes and Functions), the function of the "Fed" is to provide a detailed look at the structure, responsibilities, and operations of the Federal Reserve System (essentially, our monetary system). It's actions in controlling the key interest rate that determines whether we have "easy" or "tight" money (low or high interest rates) have a direct and major impact on the nation's economic system. Rates too high can lead to stagnation by freezing the flow of money. Rates too low can lead to free flowing money that can too easily be put to support unsustainable uses (think sub-prime mortgages with adjustable rates for a textbook example of what "easy money" can produce).
Did Mr. Greenspan oppose lowering interest rates and keeping them low during 2002 and 2003? Did the Federal Reserve go against his wishes by lowering them and keeping them low? No, and no.
Does Mr. Greenspan, as the nation's leading central banker during the creation of the real estate bubble built on his monetary policy, really expect us to believe he had no idea what the consequences of his actions might be? Where was he during the nationwide real estate bubble of the early and mid 2000s? On Mars?
Does Mr. Greenspan actually expect anyone to believe that as the nation's leading central banker, he had no idea what was going on (massively, apparently) in the nation's banking system with sub-prime mortgages/adjustable rate mortgages?
Of course Greenspan knew the likely consequences of his "easy money" policy. He was certainly aware of the risk that was building with rapidly increasing real estate values. He had to be aware that the rapid increase was accelerated by artificially enhanced demand created by bringing a vast number of new (previously unqualified) homebuyers into the market through sub-prime mortgages with "teaser" adjustable rate structures predicated on (1) the continuation of "easy money" and, (2) continued escalation of real estate values.
So, knowing that real estate prices were rapidly rising due to the burgeoning sub-prime mortgages bringing new buyers into the market, what was Mr. Greenspan's response? Did he recommend a slow, gradual tightening of the "easy money" (thus slowly choking off the market for sub-prime mortgages)? Did he recommend a cautious monetary approach that would prevent adjustable rates mortgages from escalating dramatically at the first adjustment? Did he recommend banking system mortgage practices be revised to prevent the continued abuses of which it is unimaginable that he would not have been aware? No, no, and no.
Instead of a taking actions to cautiously and slowly deflate the real estate and sub-prime mortgage bubbles, Mr. Greenspan's Federal Reserve embarked on exactly the worst possible course of action -- a course of action that literally burst those bubbles. They began a steady, fairly rapid increase in the key interest rate. Essentially, they rapidly applied a tourniquet to the flow of money that basically froze the money supply, guaranteed that risky sub-prime adjustable rate mortgages would become unsustainable, producing a wave of foreclosures that continue to this day.
Oh yes, and then Mr. Greenspan resigned.
Now, to believe Mr. Greenspan's plaintive pleas that he "didn't know" about either the real estate or sub-prime mortgage bubbles, is to believe Mr. Greenspan a fool. And while he may be many things, he certainly is no fool.
So what possibly could have motivated Greenspan's actions that spawned the greatest real estate and banking collapse in modern times?
Well, there must be some explanation.
Frankly, I really don't know. However, one scenario does come to mind that is born of a common sense view of the religion of Liberalism. As with many religions, there are always those who have a zeal that borders on the fanatic. Many liberals are fanatic zealots when it comes to adhering to the Church of Liberalism's tenets. Included with those tenets is one that preaches that anything in the service of liberal electoral victory is a legitimate and praiseworthy endeavor.
Now, it is well understood that Mr. Greenspan is a liberal. His outspoken views confirm that across a wide spectrum of issues. It isn't debatable. So, what would a good liberal in Mr. Greenspan's position do in the face of (1) a coming presidential election, and, (2) a robust economy whose strongest component is the immense housing industry (encompassing everything from building materials to major appliances and housewares) that is resting on shaky ground due to the real estate and sub-prime mortgage bubbles? Would it benefit liberalism to cautiously deflate those bubbles while doing the most to keep the economy strong? Would that benefit Mr. Greenspan's liberal Democrat Party? Of course not. It would benefit the nation and the many people throughout the nation's economy who are employed in the housing industry. It would benefit the many first-time buyers (novices to the process) who had been convinced by unscrupulous real estate and banking people to jump into the dangerous sub-prime adjustable mortgage bubble. By minimizing the potential mortgage rate escalation by opting for a measured, cautious approach to key rate escalation, Greenspan might have averted the overnight implosion of both the real estate and sub-prime mortgage bubbles.
Everyone knows that a good economy and low unemployment will benefit the Party holding the White House during a presidential election year. Greenspan knew that, too. What better way to kick Republicans out of the White House than to create an economic collapse, timed to coincide with the 2008 elections? What better method than to destroy the underlying housing market and creating fear and anger among all those who would lose their homes, their investments (in their home), and possibly their job?
So, did Greenspan do his part as a good liberal Democrat to help position his Party to retake the White House? Did he ratchet up key interest rates so quickly that he guaranteed the real estate and banking collapses witnessed from late 2006 to the present? To put it bluntly, is Mr. Greenspan a charlatan?
Or do we believe Greenspan's protests in which he claims he was unaware of the obvious -- a course that demands we see him to be a fool?
One other thing that suggests there may be something to the "help the liberal Democrats" explanation. Greenspan was quoted earlier this week as stating that the country is definitely in an economic recession. Now, in order to be classified as a "recession" it is necessary for the economy to experience two consecutive months of negative growth. While the most recent monthly report showed a dramatically smaller growth figure, it was not negative. So we are at least two months from knowing whether or not the possibility exists that Greenspan might have been successful in a scheme to create a favorable political climate for Democrat presidential contenders by driving our nation's economy into recession through reckless monetary policy. Certainly the fact that Greenspan is out there beating the drums of "economic recession" (along with the rest of the usual suspects in the Democrat political-media complex) provides further evidence of his efforts to play partisan politics with the state of our economy. Greenspan knows perfectly well that the term "recession" simply does not apply.
So we're left with further evidence that Greenspan is either a fool or a charlatan.
Bob Webster, a descendant of Daniel Webster's father, Revolutionary War patriot Ebenezer Webster, has always had a strong interest in early American history, our Constitution, U.S. politics, and law. Politically he is a constitutional republican with objectivist and libertarian roots. He has faith in the ultimate triumph of truth and reason over deception and emotion. He is a strong believer in our Constitution as written and views the abandonment of constitutional restraint by the regressive Progressive movement as a great danger to our Republic. His favorite novel is Atlas Shrugged by Ayn Rand and believes it should be required reading for all high school students so they can appreciate the cost of tolerating the growth of unconstitutional crushingly powerful central government. He strongly believes, as our Constitution enshrines, that the interests of the individual should be held superior to the interests of the state.
A lifelong interest in meteorology and climatology spurred his strong interest in science. Bob earned his degree in Mathematics at Virginia Tech, graduating in 1964.