Former Fed chairman Alan Greenspan helped create the real estate bubble that produced the global financial crisis when it burst. He routinely suppressed the forces of creative destruction that come with every market. By slashing interest rates and keeping them low for too long, and by pumping in money, he ensured there was a loss of fear which meant that the normal risk reduction response that most business people have to periodic pain never occurred. It left the US swimming in an ocean of debt that's growing all the time.
Has Greenspan acknowledged this? Well, kind of. In a paper to be presented to the Brooking Institution, and reported here, Greenspan admits the Fed saw the bubble coming but did nothing about it. At the same time, he says it wasn't his fault.
Why didn't the Fed pop the credit bubble? Greenspan says it's because the Fed was looking at when the dot com bubble burst at the beginning of this century. That didn't affect US GDP so the Fed reasoned that the same would happen this time around. How wrong they were.
So whose fault is that, given that Greenspan was the helm of the Fed. Greenspan doesn't explain, apart from saying that if the Fed did let air out of the bubble, it would have affected the US economy. Oh really. Well, the Fed didn't let any air out and look at the US economy now.
So who would you blame? Isn't it obvious?
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