Thursday, October 23, 2008

Greenspan accepts responsibility for all the wrong reasons

Alan Greenspan has come under scrutiny in the House today, being compelled to declare his culpability in the ongoing subprime mess. But what's so backwards about the whole thing is that he's being lambasted for his anti-regulatory stances, but not his years of keeping the interest rate below inflation, effectively meaning a negative real interest rate. Low interest rates supposedly buoy an economy in bad times, but can result in asset bubbles – and especially in the most valuable and long-lasting assets: houses. But no one seems very interested in taking the Fed to task on its interest rate policy – just raking it over the coals for not trying to reserve consequences of bad monetary policy, rather than attacking it for creating the bad monetary policy in the first place. And the saddest part is that Greenspan is all too willing to take responsibility for not regulating the market enough, but has shown no contrition for (and isn't being asked to by Democratic Rep. Henry Waxman, who's leading the lynching) his monetary policy, and appears to genuinely believe that lack of regulation, rather than monetary policies (among other things), were what threw the market so far off balance.

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