Greenspan admits Fed is stuck

[FRED]

Note from EJ:

In this interview, Greenspan admits that because of inflationary pressures, the Fed cannot lower rates as the housing bubble collapses to prevent the US economy from slipping into recession.

The Fed is behind the curve compared to previous cycles. In the previous two cycles shown here, the Fed lowered rates several times before the recession started and continued to cut rates during the recession. Impending recession is indicated in the chart by the trend change in median duration of unemployment. iTulip models use multiple factors, including as the composition of state sales tax receipts.

[sparki]

Re: Greenspan admits Fed is stuck

Moin from Germany,

thanks for the great video.

After the latest action from all central bankers around the globe i doubt that any CPI pressure will stop the Fed from lowering rates.

They talk tough but in the end they will ease and will please Wall Street and not Main Street....

I hope i´m wrong!

[DemonD]

Re: Greenspan admits Fed is stuck

In case anyone hadn't noticed, Alan Greenspan is a lying liar who doesn't lie all that much - only when his lips move. Since he said before that they fed wouldn't cut, I would take this to mean that they certainly will cut at the end of the month, and maybe even another half point.

[Fox]

Re: Greenspan admits Fed is stuck

I believe him when he says "I didn't get it". Its of typical of lofty people in lofty towers to have little understanding of the events around. I'm sure history will paint Greenspan more a Nero than a Maestro.

Looking through the Fed minutes you'll find ample proof of the Fed's cluelessness throughout greenspan's tenure. But if you want particular evidence of his personal cluelessness about the housing bubble, merely look at the date of his resignation (perhaps as an effort if not to escape Nero's legacy, at least escape his fate)

[DemonD]

Re: Greenspan admits Fed is stuck

I completely disagree Fox. I personally believe in the "dishonest" v. "incompetence" factor it is ever more becoming apparent that Greenspan is firmly in the "dishonest" camp. That interview itself, she asked him about Fed members who advised greenspan about those fraudulent mortgages! He is no idiot, he had to know what was going on. He lied straight to the interviewer's face when he said he didn't think it would become a problem. He feigns incompetence to make it seem like he was a benevolent Ronald Reagan type. It was and is his job to lie to the public and the congress to serve his constituency, which are the bankers.

There is no doubt he is disconnected from main street, but I no longer believe that he was really as incompetent as he says he was.

[EJ]

Re: Greenspan admits Fed is stuck

I believe him when he says "I didn't get it". Its of typical of lofty people in lofty towers to have little understanding of the events around. I'm sure history will paint Greenspan more a Nero than a Maestro.

Looking through the Fed minutes you'll find ample proof of the Fed's cluelessness throughout greenspan's tenure. But if you want particular evidence of his personal cluelessness about the housing bubble, merely look at the date of his resignation (perhaps as an effort if not to escape Nero's legacy, at least escape his fate)

I hope I have been able in some small way through recounting of personal experiences with professionals in the financial industry that faith in the intelligence and competence of members of the Fed and the banking system they are supposed to manage is generally undeserved. Most of that faith is bestowed by the public on nearly anyone who has money, except perhaps not on Paris Hilton. Most of the problems that you see are due to a convenient incompetence, or in Greenspan's case a convenient ideology mixed with insulation and incompetence, rather than artful scheming; there's more Paris Hilton in the banking system than I'd have imagined possible if I hadn't seen it for myself.

I believe I made the point most directly by quoting Martin Mayer in an article I wrote for AlwaysOn Network, the original "Bubbles in Everything" article, back in Dec. 2005, reposted on the new iTulip last year: The Bubble Cycle is Replacing the Business Cycle:

"Having won supervisory control over the entire financial services industry, the Fed must bring into the light where the markets can see them continuously the now hidden maneuverings of the private banking empires, the derivatives dealing, the over-leveraging that accompanies over-reliance on diversification and probability. And the Fed has never believed in sunshine as a disinfectant. The tragedy for all of us would be if the Fed's and the Treasury's and the Congress's reverence for people who make a lot of money left us unprotected against some sudden revelation of the truth that becomes obvious only in hindsight, that a lot of them don't know what they're doing."

[DemonD]

Re: Greenspan admits Fed is stuck

I hope I have been able in some small way through recounting of personal experiences with professionals in the financial industry that faith in the intelligence and competence of members of the Fed and the banking system they are supposed to manage is generally undeserved. Most of that faith is bestowed by the public on nearly anyone who has money, except perhaps not on Paris Hilton. Most of the problems that you see are due to a convenient incompetence, or in Greenspan's case a convenient ideology mixed with insulation and incompetence, rather than artful scheming; there's more Paris Hilton in the banking system than I'd have imagined possible if I hadn't seen it for myself.

Just a follow up on my above posts: While I agree that there are very likely many incompetent people working in the financial industry, I firmly believe that Alan Greenspan is not incompetent and is straight out lying. His recent interview above, his interview with John Stewart on the Daily Show, the Bernie Sanders video - he looks all the time a lot more like a politician who never directly answers questions. In fact, I would say, with a lot of these videos, look at the heat that he takes... and he's unflappable. He has an answer for everything, even if he isn't answering the question he's asked. That is the sign of a manipulator who knows what he is doing, not an idiot who bumbles around being defensive about his positions (see: W).

[EJ]

Re: Greenspan admits Fed is stuck

I completely disagree Fox. I personally believe in the "dishonest" v. "incompetence" factor it is ever more becoming apparent that Greenspan is firmly in the "dishonest" camp. That interview itself, she asked him about Fed members who advised greenspan about those fraudulent mortgages! He is no idiot, he had to know what was going on. He lied straight to the interviewer's face when he said he didn't think it would become a problem. He feigns incompetence to make it seem like he was a benevolent Ronald Reagan type. It was and is his job to lie to the public and the congress to serve his constituency, which are the bankers.

There is no doubt he is disconnected from main street, but I no longer believe that he was really as incompetent as he says he was.

Hudson told us it's been an open secret on Wall Street for 40 years that Greenspan will deliver the desired result to whoever signs his paycheck. Part of delivering the desired result is to ignore certain evidence. You and I might call that dishonest but I suspect he believes he's being true to his employer, and his employer wants the banking system unregulated. I also think he truly believes that unregulated banking is better than regulated banking, so his employer's mission was consistent with his own beliefs.

When Greenspan says "Stopping certain practices would have been very difficult" what he means is that stopping them would be impossible without introducing new regulation, which neither his employer nor he believe are beneficial to the banking system. He must believe that the current problems are non-fatal to the banking system, and he accepts as part of the ideology of unregulated banking that the system occasionally breaks down and has to be restored by the Fed, and that collateral damage to, say, homeowners is a cost of doing business this way, which is in his view lower that the cost of doing business the other way, with more regulation.

By analogy, he views the Fed as a fire financial system department, not a development management department that seeks to use zoning and other laws to prevent catastrophic city-wide fires. In his mind, a city of densely packed together wooden buildings is fine if that's what the market dictates.

If iTulip has another motto it is: "We like capitalism, so don't break it."

The excesses of an unregulated banking system can lead to systemic failures that can destroy confidence in capitalism itself. That was the lesson of the 1920s and 1930s. But that's not the lesson Greenspan took away from that era. His take is that the failure was rooted in the Fed's incompetence as a fire fighter in the 1930s rather than in the Fed's failure in the 1920s to regulate building.

Honest or not, it is certainly a convenient way of looking at the matter, if you're running the Fed.

[metalman]

Re: Greenspan admits Fed is stuck

Hudson told us it's been an open secret on Wall Street for 40 years that Greenspan will deliver the desired result to whoever signs his paycheck. Part of delivering the desired result is to ignore certain evidence. You and I might call that dishonest but I suspect he believes he's being true to his employer, and his employer wants the banking system unregulated. I also think he truly believes that unregulated banking is better than regulated banking, so his employer's mission was consistent with his own beliefs.

When Greenspan says "Stopping certain practices would have been very difficult" what he means is that stopping them would be impossible without introducing new regulation, which neither his employer nor he believe are beneficial to the banking system. He must believe that the current problems are non-fatal to the banking system, and he accepts as part of the ideology of unregulated banking that the system occasionally breaks down and has to be restored by the Fed, and that collateral damage to, say, homeowners is a cost of doing business this way, which is in his view lower that the cost of doing business the other way, with more regulation.

By analogy, he views the Fed as a fire financial system department, not a development management department that seeks to use zoning and other laws to prevent catastrophic city-wide fires. In his mind, a city of densely packed together wooden buildings is fine if that's what the market dictates.

If iTulip has another motto it is: "We like capitalism, so don't break it."

The excesses of an unregulated banking system can lead to systemic failures that can destroy confidence in capitalism itself. That was the lesson of the 1920s and 1930s. But that's not the lesson Greenspan took away from that era. His take is that the failure was rooted in the Fed's incompetence as a fire fighter in the 1930s rather than in the Fed's failure in the 1920s to regulate building.

Honest or not, it is certainly a convenient way of looking at the matter, if you're running the Fed.

that, and he's a liar, too.

[*T*]

Re: Greenspan admits Fed is stuck

I hope I have been able in some small way through recounting of personal experiences with professionals in the financial industry that faith in the intelligence and competence of members of the Fed and the banking system they are supposed to manage is generally undeserved.

I have worked as a physicist. I spent some weeks in Ibaraki-ken, Tokai mura in Japan for a work visit. They have nuclear fission reactors there a mile or two from the accommodation (not why I was there though), and power lines went over the apartment where I was staying. A friend was visiting at the time, and as I stood outside looking at the power lines, he asked we if I was concerned about staying so close to nuclear reactors and said surely, I would trust the physicists and engineers to know what they were doing.
I thought about it for a bit, then said no, based on universal human frailties; I considered myself more able and conscientious than most in my field but I knew I wouldn't trust myself not to make mistakes and occasionally cut corners.

Two weeks later, back in the UK, I see on the news that some engineers working at a processing plant in Tokai had rewritten safety procedures in order to speed up a process. Of course a criticality accident was inevitable. A Big Mess ensued :eek:.
(see http://www.uic.com.au/nip52.htm for details)

The moral of the random anecdote is, though the science/economics may be obvious, people are lazy, cut corners, have deadlines or other pressures, and they screw up on a systematic basis. Sometimes when they screw up it makes a big mess.