It’s funny how people can turn on public figures. I get suspicious of someone’s motives when they vilify people they once praised. To turn on someone that quickly probably helps people shift blame. Nevertheless, Alan is a smart guy.
He writes:
Why did the 2007 bubble reach century-rare euphoria? The answer, I believe, lies with the dot-com bubble that burst with very little footprint on global GDP, and in the U.S., the mildest recession in the post-World War II period. And indeed the previous U.S. recession (1990-1991) was the second most shallow. Coupled with the fact that the1987 stock market crash left no visible impact on GDP, it led the Federal Reserve and many a sophisticated investor to believe that future contractions would also prove no worse than a typical post-war recession.
While this paragraph smells of moral hazard and the ‘Greenspan put’, it also reflects the attitude of most people prior to the 2008 crash. Monetary policy was only one force that created a perceived new era of low risk – the liberalization of trade, the opening of cheap labor markets, policies that encouraged risky behaviors and the re-construction of risk through securitization all enabled the ‘great moderation’.
This was a collective game were were playing. Nobody complained when they’d withdraw equity from their homes to buy a Hummer.
However, we knew something was amiss – how does a simple wage-earner afford semi-annual vacations, Louis Vuitton bags, 2 cars and a 4,000 square foot mcmansion?
In the recesses of our brains we knew the game would end someday, but we still played hard while we could.
The Crisis – by Alan Greenspan
-
Denise Brown
-
Plan B Economics
-
test
