Barry Ritholtz, one of my favorite financial bloggers, left a comment to my most recent post on Alan Greenspan. After declaring Paul Volcker the hero of the modern Fed story, he wrote:
Greenspan was like the long middle reliever in a baseball game. He took a big lead and ultimately gave alot of it away. He completely blew the dot com bubble — as a few people observed at the time, the margin rules for dotcom stocks could have been tightened before things got way out of hand. (The Fed funds rate did not need to be adjusted in 1999 or 2000 to create the desired effect)
In 2002-03, Greenspan did create ultra low rates. He took the Fed Fund rate to 1% and left it there for a year. That has led to a lot of subsequent ills, too numerous to list here.
So with the bases loaded, and no one out, Ben Bernanke has become the relief pitcher.
We can assess blame to Greenspan for those runners in scoring position . . .
It’s a great analogy except for one thing: What kind of middle reliever pitches for 18 innings? One can, with reason, argue that Greenspan stayed on too long. I’m dubious of the argument about margin lending in the dot-com bubble, because I don’t think most of the people buying dot-com stocks were doing it with borrowed money. But I would agree that Greenspan was out to lunch as the housing boom inflated into a bubble in 2005 (although it’s worth pointing out that this was during the last of his 18 years in office).
And what about then-Treasury Secretary John Snow, then-House Banking Committee chairman Mike Oxley, then-Senate Banking Committee Chairman Richard Shelby, and then-and-now President George Bush? Any really major attempt to crack down on the craziness in mortgage markets would have had to go through them. Why aren’t they getting raked over the coals?
Oh, it’s because they didn’t $8 million book advances? Never mind.