Former Federal Reserve Chairman Alan Greenspan Says Market Turmoil Like 1998, 1987
NEW YORK (AP) -- "The human race has never found a way to confront bubbles," former Federal Reserve Chairman Alan Greenspan said Thursday in reference to the euphoria that can precede contractions, or reactions, like the current market turmoil, according to a published report.Ah yes, it is the human race that cannot control themselves. They are not enticed by the allure of easy money from Federal Reserve Chairmen that lower interest rates to 1%, keep rates low for too long, encourage homebuyers to take on variable rate mortgages, raise interest rates 14 times, and applaud the use of subprime mortgages to make housing more attainable for all Americans.
Greenspan, speaking to economists in Washington, D.C., compared the turmoil to that of 1987 and in 1998, when the giant hedge fund Long-Term Capital Management nearly collapsed, The Wall Street Journal reported on its Web site.
"The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly the bank panic of 3/8 1907," Greenspan said at the event organized by the Brookings Papers on Economic Activity, according to the Journal.
Greenspan, now a private consultant, said euphoria takes over when the economy is expanding and leads to bubbles, "and these bubbles cannot be defused until the fever breaks," the Journal said.
...or when inept Federal Reserve Chairmen retire and someone else has to clean up their mess.
Bubbles can't be defused through incremental adjustments in interest rates, he suggested, the paper reported. The Fed doubled interest rates in 1994-95, and "stopped the nascent stock-market boom," but when stopped, stocks took off again. "We tried to do it again in 1997," when the Fed raised rates a quarter of a percentage point, and "the same phenomenon occurred."That's right Easy Al. When you create a monstrosity of a bubble and you hope that incremental interest rate hikes will scare home buyers from taking on mortgages, it doesn't work. They fall prey to corrupt mortgage brokers, bankers, and real estate agents as they are consumed by greed and fear. They want to make money. They don't want to miss out on a once in a lifetime investment opportunity. Ultimately though, the cheap money was created by Greenspan and Wall Street ran with it. Banks gave money to anybody that had a pulse, repackaged the toxic waste mortgages, and sold them off and the disastrous results are only beginning to be discovered. Am I the only one getting tired of hearing his retirement sermons? It's time to give up the limelight Al. Now that the mainstream media is pointing fingers in the housing bubble blame game, there really is nowhere to hide.
