In his eighteen year term as Fed Chairman, Alan Greenspan orchestrated the greatest expansion of speculative finance in history. Through it all, he presented himself as a disinterested economist, as a scientist quoting the laws of physics. He wasn’t. FULL ARTICLE
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7 comments ↓
Notice how Greenspan the great inflator has been spending his time defending himself lately? He’s explaining how all this wasn’t his fault….which reinforces my belief that it was.
All the bubbles he created….he might be the greatest crook in American history.
I think the article is good overall – Greenspan was definitely a huge part of the problem we face today. But the parts that talk about him leaving the system “unregulated” – and talking about Glass-Steagall as a benefit to society are way off base. Would be good to see an article covering those here someday, as it might take this way off base – especially because the criminal, fraudulent FDIC was a big part of that act.
But, this part is what I think it most spot-on about the entire essay:
“At this point, no bailouts, new taxes, or new regulations can save us from the financial reckoning. The Fed can only choose between trillion dollar defaults on derivatives, or hyperinflation. Either way, this will be the end of the US dollar as a viable currency, and the US economy as we know it.”
I have been working on this essay for a long time…Too long, I have a bad habit of trying to make everything perfect. My earlier essay talked about the dot.com bubble, and how Greenspan lowered interest rates to one percent to save his financial friends.
This of course only gave financiers more cheap credit to inflate another bubble. If anyone is interested I’ll post the original info.
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Cheap credit is right – and they’re not going to stop trying to get us to take on more and more debt. That’s what Obama and his team have been saying all along – credit and debt are what make this economy go.
They’re right, and that’s why it’s crashing, because taking on debt only brings the illusion of prosperity. Eventually the bills come due, and we don’t have the money.
Ferenc. I believe there was once a song that lamented that the singer had an easy monthly payment due every day of the month.
Scott. I for one would like to look at the info.
This part would have begun right after Greenspan lobbied for the Commodities Futures Modernization Act. Here it is:
What followed was a series of financial meltdowns.
The Dow Jones Industrial average doubled in value from June 1996 to March of 2000, while the NASDAQ, laden with stocks from the emerging technology sector, soared by 125%. The price to earnings ratio on stocks climbed to levels not seen since 1929, and then the bubble burst. Over six trillion dollars in investors wealth disappeared during the dot-com meltdown that began in the summer of 2000.
Enron’s stock price peaked at over 90 dollars that summer. When the company filed for bankruptcy in December of 2001, those shares were worth pennies. Enron had used the newly deregulated commodities markets, coupled with “energy derivatives”, to wreak havoc on electricity prices.
The bankruptcies of Enron, Worldcom, and Global Crossing were the largest in US history, totalling over 200 billion dollars. In addition, a series of accounting scandals rocked the financial world after the implosion of these firms. The Federal Reserve suddenly had to respond to collapsing stock markets, turbulence in currency and derivatives trading, and a loss of investor confidence.
Alan Greenspan was faced with a stark choice: He could allow the free market to run its course, or intervene to save the financial system he had helped to create. In January of 2001, the Fed began a series of rate cuts that lowered interest rates from 6% to a Depression-era low of 1% by June of 2003.
Alan Greenspan maintained this extraordinarily low interest rate for over a year. Not coincidently, the Dow Jones Industrial Average lost ground in 2001 and 2002, then gained 25% in 2003. Only when the markets recovered did Alan Greenspan increase interest rates.
Starting in June of 2004, the Fed gradually began raising borrowing costs with fourteen consecutive fed-funds rate increases. Interest rates climbed to 4.5%, where they remained until Alan Greenspan stepped down as Fed Chairman on January 31st, 2006. But it was too little, too late.
I would have liked to include it, but it makes the essay over 2000 words and it just doesnt read as well. Too much information. The point is, Greenspan orchestrated this derivatives system and it collapsed in the summer of 2000. Rather than change it he lowered interest rates to re-inflate the system.
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Yes, the key thing to note is that Greenspan continually worked to ensure that credit was cheap and easy flowing. He did that by making sure that interest rates were extremely low, far too low. That encourages people to take on debt, and in the long run, inflates the supply of money too – which devalues it even further.
What a mess, and it’s only going to get worse.
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