The sphinx is back. And this time it’s talking like never before.
Former federal reserve chairman Alan Greenspan – dubbed “the sphinx” because he spoke in cryptic statements than many analysts spent a lot of time deciphering — is busy giving media interviews left, right and centre as he promotes his latest book, ‘The Map and the Territory’. His perceived success on the job was so high that towards the end of his 18 year tenure (1987-2006), he even began to be called the “greatest central banker that ever lived”. However, such high praise now seems slightly premature as the global credit crisis, which originated in the U.S., erupted only two years after he left office. Many blame monetary policy actions taken during his time for the housing market implosion a few years later.
How does Greenspan feel about what happened to the U.S. economy, and does he feel that he should have done things differently to prevent the financial implosion?
I have to admit, I haven’t read the book, but having scanned some of the many interviews floating around, here’s what he had to say:
One, he still doesn’t believe in regulating markets or trying to burst asset bubbles. “You cannot deflate them (bubbles),” he says in a BBC interview, arguing that once authorities pull back on action to burst a bubble, another bubble starts again. Translation: Don’t waste time trying to burst a bubble.
While he acknowledges that the self-correcting mechanism of the markets works less effectively than previously thought, he’s still rooting for less regulation, not more. “If you’re thinking in terms of the period when we all thought that people acted in their long-term self-interest, you can demonstrate in that hypothetical case that you need no regulations at all,” he notes in an NPR interview. “…The premises that I believed prior to 2008 I had to discard because the evidence definitely said I was wrong.” Yet, he continues to have unshakeable faith in the markets, and believes regulating them is well, unnecessary. As this Slate.com post notes, Greenspan believes that “regulation overhaul is a pointless increase in the regulatory burden, and really the entire crisis could and should have been avoided by imposing stiffer capital requirements (i.e., less borrowing) on the financial sector”.