Greenspan: Government “activism” killing economic recovery

posted at 2:15 pm on March 14, 2011 by Ed Morrissey

Tomorrow, former Fed chair Alan Greenspan will go to the Council on Foreign Relations and argue that the main obstacle to economic recovery is the expansion of bureaucratic uncertainy caused by the “activism” of the Obama administration.  Clifford Marks explains his thinking at National Journal, although he clearly isn’t impressed with the argument:

In searching for an explanation of the lackluster recovery, Greenspan zeroes in on an aversion to business investments in illiquid assets, which, for non-financial firms, has reached a high not seen since the 1940s. It is no secret that businesses have been hoarding cash and holding back from supporting much-needed growth. Is this the right statistic to look at when it comes to explaining slow growth? There’s a compelling case to be made, though it’s not airtight. Assuming it is, though, Greenspan concludes that the culprit here is uncertainty — but uncertainty about what?

This is where things get dodgy. Greenspan seeks to prove a correlation between the illiquid asset investment he deemed critical to explaining our slow recovery and two variables — one intended to show the effects of fiscal deficits and another that is supposed to represent a non-government related fall in demand. The first is just a measure of how high the federal government’s deficit has soared. The non-government statistic is a measure of how much capacity is being utilized by non-farm businesses. …

His theoretical explanations are myriad: moral hazard following massive bailouts, financial regulation, government debt crowding out private investments. Direct evidence of impact, however, is lacking. He does acknowledge that the recent crisis has “cast doubt” on the presumption that markets be very lightly regulated, but even after the machinations of unregulated markets helped pitch the nation into recession, his own faith in unregulated markets doesn’t appear to have been shaken much at all.

“The presumption that intervention can substitute for market flaws, engendered by the foibles of human nature, is itself highly doubtful,” he writes. “Much intervention turns out to hobble markets rather than enhancing them.”

But Marks doesn’t believe that Greenspan provides enough evidence for his conclusions, and accuses the former Fed chair of arguing ideology over provable data:

It is not fair to say Greenspan is wrong; his numbers don’t prove that. But just as surely, they don’t prove him right. He sets aside the potential for what statisticians call omitted-variable bias, when a third but excluded variable explains some of the effect attributed to one of the pieces of data included. And Greenspan dismisses the “indeterminate degree of fading residual crisis shock” because he cannot find a good variable for it.

The rest of the paper is full of modules that explain various theories on why the unhindered free market helps the economy. These are all logical, even compelling in an anecdotal sense, but they are not the be-all and end-all — and they don’t prove Greenspan’s numerical claims.

Marks concludes with this odd retort:

It appears that he’s back to preaching the free-market gospel once again, almost as if the last few years had been a dream.

Marks says this as if the last two years had been a dream.  We have had the Keynesian interventions and the regulatory imposition that Greenspan’s critics demanded, and have they worked?  Not at all.  The argument that the stimulus bill would keep unemployment below 8% failed even as civilian participation in the workforce fell to generational-low levels.  Investors have either gone overseas or stayed on the sidelines, while businesses hoard cash and wait for more clarity in some context, at least.

Normally, we would see upticks in employment by now.  The Minneapolis Federal Reserve Board offers this helpful chart of all post-WWII recessions and the recovery of employment in their aftermath:

The big orange line on the bottom tracks employment for the current “recovery.”  Only the 2001 recession, which had two major shocks and lasted through 2003, and the 1980 recession which also arguably double-dipped, recovered anywhere nearly as slowly as now, and both were significantly more shallow.  Marks can denigrate Greenspan all he wants, but Greenspan at least knew how to deal with a recession.

Furthermore, the mainspring of the 2008 meltdown wasn’t a lack of regulation on Wall Street, but massive government interventions in the housing market that Fannie Mae and Freddie Mac then passed along as securities.  When the housing market bubble popped, the collapse turned those into impossible-to-value assets.  The derivative markets on those assets certainly created their own problems, but they wouldn’t have collapsed the economy on their own had government not artificially and unsustainably inflated home values and incentivized consumers to spend beyond their means on mortgages.  The basic problem of the collapse was government intervention, not a lack of regulation, although the latter contributed in part to the damage on the way down.

Now we have had a massive regulatory expansion on Wall Street, credit markets, banking, and employment (through ObamaCare) over the past two years, most of which has yet to pass beyond the ambiguities of unread Congressional acts and myriad mandates for bureaucratic judgments rather than clear and unambiguous law.  Is pointing out uncertainty as a culprit in economic stagnation really that outrageous?  Given the failure of pseudo-Keynesian economics over the last two years, I’d expect at least a little more open-mindedness to the man who helped engineer five years of economic growth after a tough recession.

Update: The US Chamber of Commerce echoes Greenspan, at least on energy:

  • In aggregate, planning and construction of the subject projects (the “investment phase”) would generate $577 billion in direct investment, calculated in current dollars. The indirect and induced effects (what we term multiplier effects) would generate an approximate $1.1 trillion increase in U.S. Gross Domestic Product (GDP), including $352 billion in employment earnings, based on present discounted value (PDV) over an average construction period of seven years. 1 Furthermore, we estimate that as many as 1.9 million jobs would be required during each year of construction.
  • The operation of the subject projects (the “operations phase”) would generate $99 billion in direct annual output, calculated in current dollars, including multiplier effects, this additional annual output would yield $145 billion in increased GDP, $35 billion in employment earnings, based on PDV, and an average 791,200 jobs per year of operation. Assuming twenty years of operations across all subject project types, we estimate the operations phase would yield a potential long term benefit of $2.3 trillion in GDP, including $1.0 trillion in employment earnings, based on PDV.
  • Therefore, the total potential economic and employment benefits of the subject projects, if constructed and operated for twenty years, would be approximately $3.4 trillion in GDP, including $1.4 trillion in employment earnings, based on PDV, and an additional one million or more jobs per year.

The USCC’s president, Tom Donahue, wrote about this last week in USA Today (via Robert Costa).


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We cannot keep increasing regulations, paying for heatlh care, adding more taxes and fees, and still expect the US to grow jobs when there are countries near and far with less regulations and costs, making great incentives for businesses to start there instead of here. America is on the brink of a collapse; it is approaching the end of its time to fix it before it does collapse.

Currently, in order to maintain the same unemployment rate in 2011, one hundred fifty thousand jobs need to be created each month just to keep up with population growth. We need to stop government spending, stop wars of aggression costing us hundreds of billions a year, end the Federal Reserve, and abolish the income tax, and reduce business regulations across all states and federally. Without taking these steps, short of a miracle, America doesn’t stand a chance.

PatriotRider on March 14, 2011 at 2:18 PM

It’s almost like the Obama Administration is crashing our economy on purpose. But Why?

portlandon on March 14, 2011 at 2:19 PM

guess ole alan’s gonna be spanking it for awhile. andrea wont be too happy w/ him criticizing obambi.

chasdal on March 14, 2011 at 2:20 PM

Example Numero Uno: Unconstitutional Obamacare

Chip on March 14, 2011 at 2:20 PM

Greenspan: Government “activism” killing economic recovery

Why would anyone listen to Alan Greenspan on anything, ever?

Proud Rino on March 14, 2011 at 2:20 PM

Shoulda thought of that before listening to Andrea, should you, P-Whip!

Sekhmet on March 14, 2011 at 2:24 PM

It’s almost like the Obama Administration is crashing our economy on purpose. But Why?

portlandon on March 14, 2011 at 2:19 PM

Obama wants chaos so that he can take extraordinary measures to “restore order.”

BuckeyeSam on March 14, 2011 at 2:26 PM

I can’t imagine there’s ever a good day to be married to Andrea Mitchell, but I suspect this is going to make for a particularly bad day for Mr. Greenspan. Kudoes to Greenspan for not taking the easy path …

BuzzCrutcher on March 14, 2011 at 2:27 PM

Somehow, I don’t think we should be listening to what this man has to say.

ernesto on March 14, 2011 at 2:27 PM

In other news, it is being reported that Mrs. Allan Greenspan has declared her hubby persona non grata and has withdrawn her ‘lock box’ from mothballs.

JimP on March 14, 2011 at 2:28 PM

It’s almost like the Obama Administration is crashing our economy on purpose. But Why?

portlandon on March 14, 2011 at 2:19 PM

You get that impression don’t you?

Consider the evidence at hand: They do not want to do anything serious about the budget – except expand it even more.

They’re only solution is to Tax more and spend more with the mistaken ideas that there is a unlimited source of money they can steal and that it actually works in “Stimulating” the economy.

Long story short, they want to continue the insanity that has brought us to the brink of disaster and their only refrain is more of the same.

What other conclusion can a SANE person make?

Chip on March 14, 2011 at 2:30 PM

Somehow, I don’t think we should be listening to what this man has to say.

ernesto on March 14, 2011 at 2:27 PM

Okay, so what’s Your solution?

(Besides even more Oppressive taxation, that is)

Chip on March 14, 2011 at 2:31 PM

It is not fair to say Greenspan is wrong; his numbers don’t prove that. But just as surely, they don’t prove him right. He sets aside the potential for what statisticians call omitted-variable bias, when a third but excluded variable explains some of the effect attributed to one of the pieces of data included. And Greenspan dismisses the “indeterminate degree of fading residual crisis shock” because he cannot find a good variable for it.

Interesting commentary from Marks. Is it “because he could not find a good variable for it” – or could it be he… dismisses it as a variable for its not quantitative.

“indeterminate degree of fading residual crisis shock” is not a phrase or method of statiticians,/b> but a specific variable attempted by these statiticians, that again – Greenspan consistently and soundly rejects as a variable to be considered at all.

In laymens terms – that phrase means “things get better over time because people forget” – which is devoid of reality, statistics and any form of quantitative analysis. It also fails – due to the severity of the economic crisis in America, which ironically can tell you something…

Odie1941 on March 14, 2011 at 2:33 PM

Right message. Wrong messenger.

dedalus on March 14, 2011 at 2:35 PM

Somehow, I don’t think we should be listening to what this man has to say.

ernesto on March 14, 2011 at 2:27 PM

Really? Mr. “I found a ‘flaw in my ideology’ in my 80s after I was asleep at the wheel while the worst economic crisis since the Great Depression was occurring after spending two decades as Chairman of the Federal Reserve” shouldn’t be listened to? Mr. “I don’t think we need derivatives regulation because the market will sort that out”? “The Oracle”?

Proud Rino on March 14, 2011 at 2:35 PM

Why would anyone listen to Alan Greenspan on anything, ever?

Proud Rino on March 14, 2011 at 2:20 PM

Perhaps you should read the whole posting. It wasn’t low interest rates that caused the housing market to collapse and it wasn’t derivitives alone that contributed to it.

The fact that he took responsibility for not regulating derivitives more also shows that he at least learns from mistakes and doesn’t blame the politicians. Who really should be blamed.

Vince on March 14, 2011 at 2:36 PM

STFU Alan.

This guys is something else. He singlehandedly caused the housing bubble. Then he came out in favor of porkulus and against extending the tax cuts.

So please Alan, just STFU and go away.

And he’s married to Andrea Mitchell. UGH.

angryed on March 14, 2011 at 2:36 PM

Hell must have frozen over. I agree with Ernie and Proud Moron at the same time.

angryed on March 14, 2011 at 2:38 PM

He singlehandedly caused the housing bubble
angryed on March 14, 2011 at 2:36 PM

How so?

Vince on March 14, 2011 at 2:40 PM

It’s almost like the Obama Administration is crashing our economy on purpose. But Why?

portlandon on March 14, 2011 at 2:19 PM

Obama wants chaos so that he can take extraordinary measures to “restore order.”

BuckeyeSam on March 14, 2011 at 2:26 PM

Like the $700 billion “stimulus”? Like moratorium on off-shore drilling? Like carbon credits in response to the danger of global warming?

Paul-Cincy on March 14, 2011 at 2:40 PM

The derivative markets on those assets certainly created their own problems, but they wouldn’t have collapsed the economy on their own had government not artificially and unsustainably inflated home values and incentivized consumers to spend beyond their means on mortgages. The basic problem of the collapse was government intervention, not a lack of regulation, although the latter contributed in part to the damage on the way down.

Excellent analysis.

Vince on March 14, 2011 at 2:42 PM

Excellent analysis.

Vince on March 14, 2011 at 2:42 PM

Yep, not a single link or citation to any data, just lots of opinion that you agree with. “Excellent”, indeed.

Proud Rino on March 14, 2011 at 2:45 PM

Let’s get real here.
Greenspan talks about uncertainty.
What uncertainty you might ask ?
It’s the uncertainty that the President won’t take them to task for making a profit or that the revenue-seeking Congress won’t suck up every last dime of profit that can be made by an investment.
That’s the uncertainty. Or is that a certainty ?

J_Crater on March 14, 2011 at 2:45 PM

Did he run his speech by that stupid woman who changes his diapers?

Schadenfreude on March 14, 2011 at 2:49 PM

It’s almost like the Obama Administration is crashing our economy on purpose. But Why?

portlandon on March 14, 2011 at 2:19 PM

To control more sheep.

Schadenfreude on March 14, 2011 at 2:50 PM

May Greenspan burn in hell here, for his big hand in the financial crisis of 2008 and before. This is one of the most underreported stories.

Schadenfreude on March 14, 2011 at 2:52 PM

Dear Mr. Greenspan,

If you would like to meet someone who was there, saw it all going on and did nothing while the activist government was putting us on this path, then I suggest you pick up a mirror. You will find one of the primary actors who should have known better.

ajacksonian on March 14, 2011 at 2:52 PM

Yep, not a single link or citation to any data, just lots of opinion that you agree with. “Excellent”, indeed.

Proud Rino on March 14, 2011 at 2:45 PM

Sometime the forest can be seen through the trees.

darwin-t on March 14, 2011 at 2:53 PM

It’s almost like the Obama Administration is crashing our economy on purpose. But Why?

portlandon on March 14, 2011 at 2:19 PM

It’s his mandate?

wi farmgirl on March 14, 2011 at 2:56 PM

Proud Rino on March 14, 2011 at 2:45 PM

Perhaps you’re living in a alternative universe where Keynesian economics works and government spending makes the whole world a better place but the rest us can see that isn’t the case.

So maybe you could post some data from your bizarro world and let us see how wonderful it can be.

Chip on March 14, 2011 at 2:57 PM

The other problem with the chart is the upward slope of current unemployment.
Obama is cooking the books with his .4% drop in January and his .1% drop in February.

Employment did not increase enough to keep up with the 100k workers that we add to the workforce every month. They performed this trick by removing a half million people from the workforce.

This administration is run by liars and criminals.

MaaddMaaxx on March 14, 2011 at 2:57 PM

Furthermore, the mainspring of the 2008 meltdown wasn’t a lack of regulation on Wall Street, but massive government interventions in the housing market that Fannie Mae and Freddie Mac then passed along as securities.

Let’s not overlook that Fannie and Freddie basically set up a form of money laundering, where the risks of the mortgage market were washed off onto the taxpayer. That was the moral hazard that drove the bubble.

You know, a lot of people scream about what “caused the recession”, but the reality is that the recession is a natural and necessary (dare I say even “good”?) end to the artificial “boom” where people think they have more wealth than they really do. The real culprits are what caused the boom, not what event finally triggered the recession.

Count to 10 on March 14, 2011 at 2:59 PM

America is on the brink of a collapse; it is approaching the end of its time to fix it before it does collapse.

We need to stop government spending, stop wars of aggression costing us hundreds of billions a year, end the Federal Reserve, and abolish the income tax, and reduce business regulations across all states and federally. Without taking these steps, short of a miracle, America doesn’t stand a chance.

PatriotRider on March 14, 2011 at 2:18 PM

Can we impeach the Won and save the country?

wi farmgirl on March 14, 2011 at 3:03 PM

Furthermore, the mainspring of the 2008 meltdown wasn’t a lack of regulation on Wall Street, but massive government interventions in the housing market that Fannie Mae and Freddie Mac then passed along as securities.

This is just wrong. Fannie Mae didn’t force Bear Stearns and Lehman Bros to collapse. They didn’t force AIG to insure those bonds. They didn’t force Moodys and S&P to rate those bonds as AAA rated bonds. GSEs may have started that but nobody put a gun to Dick Fuld’s head and told him to overleverage his business, and if derivatives had been regulated (something Alan Greenspan adamantly opposed) it’s possible that none of those things would have happened.

Proud Rino on March 14, 2011 at 3:03 PM

How so?

Vince on March 14, 2011 at 2:40 PM

The Gold Bugs typically believe that the FED is the root of all evil. In this case, he most likely thinks that the Fed’s easy money policy after the tech crash is the primary reason for the over investment in the housing market.

Count to 10 on March 14, 2011 at 3:04 PM

Greenspan just got himself (and his wife ANDREA MITCHELL, NBC NEWS!) disinvited from the DC cocktail circuit. She’s not gonna like that…

Khun Joe on March 14, 2011 at 3:05 PM

Yep, not a single link or citation to any data, just lots of opinion that you agree with. “Excellent”, indeed.

Proud Rino on March 14, 2011 at 2:45 PM

Only those who lack comprehension need links to know what happened. If you build homes on quick sand they sink.

Schadenfreude on March 14, 2011 at 3:05 PM

Proud Rino on March 14, 2011 at 3:03 PM

What was the source of the Community Reinvestment Act?

Chip on March 14, 2011 at 3:07 PM

Only those who lack comprehension need links to know what happened.

Schadenfreude on March 14, 2011 at 3:05 PM

Who needs facts when you already know what you wish was true?

Proud Rino on March 14, 2011 at 3:07 PM

Proud Rino on March 14, 2011 at 3:03 PM

Fanny and Freddy basically gave the market to dump all it’s risks. That is what distorted the market. Everyone was just following the money with the best information that they had. This is why it’s so important to keep these distorting government influences out of the market in the first place.

Count to 10 on March 14, 2011 at 3:07 PM

And he’s married to Andrea Mitchell. UGH.

angryed on March 14, 2011 at 2:36 PM

She married him for his $.

wi farmgirl on March 14, 2011 at 3:08 PM

What you see there is the sucking of cash OUT of the economy(taxpayers) and into the government coffers.
The Fleecing of America. Stage 2 is seizing all your 401ks.

Oh and BTW, all those TOXIC assets, ARE STILL THERE…waiting…

orbitalair on March 14, 2011 at 3:09 PM

What was the source of the Community Reinvestment Act?

Chip on March 14, 2011 at 3:07 PM

LOL. Right. Banning discrimination in low income neighborhoods is what caused Lehman Bros to collapse. CRA passed in like 1977, somehow Lehman managed to soldier on for another 30 years or so without collapsing. How about that.

Proud Rino on March 14, 2011 at 3:09 PM

Read this and spread it around, like fire.

Schadenfreude on March 14, 2011 at 3:09 PM

angryed on March 14, 2011 at 2:38 PM

LOL

wi farmgirl on March 14, 2011 at 3:09 PM

Who needs facts when you already know what you wish was true?

Proud Rino on March 14, 2011 at 3:07 PM

Stop spinning – it’s a fact that those who can’t afford homes shouldn’t be granted loans to ‘buy’ them, and to take more loans out on them…the rest is all hot air.

Schadenfreude on March 14, 2011 at 3:11 PM

It’s also a fact that Obama is the Cash for Clunkers Pimp.

Schadenfreude on March 14, 2011 at 3:12 PM

She married him for his $.

wi farmgirl on March 14, 2011 at 3:08 PM

Maybe, but god keeps him alive beyond what she thought.

On the other hand maybe no one else wanted her and she is in bed, literally, with the enemy. As a ‘reporter’ that c/b invaluable.

Scarecrows are indignant.

Schadenfreude on March 14, 2011 at 3:14 PM

What was the source of the Community Reinvestment Act?

Chip on March 14, 2011 at 3:07 PM

LOL. Right. Banning discrimination in low income neighborhoods is what caused Lehman Bros to collapse. CRA passed in like 1977, somehow Lehman managed to soldier on for another 30 years or so without collapsing. How about that.

Proud Rino on March 14, 2011 at 3:09 PM

Ahh that’s why we call you Proud Strawman!

I am merely pointing out that it was governmental intervention in the marketplace that began the process.

Besides which, isn’t that the whole point of this topic?

Chip on March 14, 2011 at 3:14 PM

Stop spinning – it’s a fact that those who can’t afford homes shouldn’t be granted loans to ‘buy’ them, and to take more loans out on them…the rest is all hot air.

Schadenfreude on March 14, 2011 at 3:11 PM

I agree with that. I agree with all of that, but you know it wasn’t like the banks were forced to give people loans, they just weren’t allowed to redline low income neighborhoods. You didn’t have to give subprime mortgages. You didn’t have to create MBSs and you certainly didn’t have to base your entire massive I-bank that was literally “too big to fail” on a bunch of mortgages about which you knew nothing, just that there was a massive bubble in prices and it was easier than ever to get a loan.

Government didn’t create those problems.

Proud Rino on March 14, 2011 at 3:15 PM

I am merely pointing out that it was governmental intervention in the marketplace that began the process.

Chip on March 14, 2011 at 3:14 PM

Well, technically the first person who ever thought up the idea of giving someone a loan was the guy who *really* began the process. I think that was a caveman named Oog. I blame Oog.

Proud Rino on March 14, 2011 at 3:16 PM

Yep, not a single link or citation to any data, just lots of opinion that you agree with. “Excellent”, indeed.

Proud Rino on March 14, 2011 at 2:45 PM
Only those who lack comprehension need links to know what happened. If you build homes on quick sand they sink.

Schadenfreude on March 14, 2011 at 3:05 PM

This!

I don’t need to post links to sites that agree with my opinion. It wouldn’t change your mind and it wastes my time.

Greenspan had a long stint at the helm of the Fed and we were prosperous during that time for the most part. I believe that he would have handled the “crisis” better if he would have been there in 2008 but I would say that he and others did get lazy.

I spent 15 years at Lehman Brothers and lost most of my pension because of this “crisis” and I don’t blame Greenspan.

Vince on March 14, 2011 at 3:16 PM

He singlehandedly caused the housing bubble
angryed on March 14, 2011 at 2:36 PM

How so?

Vince on March 14, 2011 at 2:40 PM

He kept rates at ridiculously low levels for way too long.

angryed on March 14, 2011 at 3:16 PM

Government didn’t create those problems.

Proud Rino on March 14, 2011 at 3:15 PM

You’re so naive.

angryed on March 14, 2011 at 3:18 PM

Proud Rino on March 14, 2011 at 3:15 PM

It’s not so much the rules against redlining as it is the hoops lenders had to jump through to prove they weren’t, and no so much that as it was the incentives they were given to make bad loans. It’s all part of the same package, and it built up gradually over three decades as congress formed little fiefdoms out of it.

Count to 10 on March 14, 2011 at 3:20 PM

IMHO, it does not make a lot of sense to compare the recovery in current recessions with those prior to the advent of PC’s and the internet. That’s because technology has helped remove jobs by virtue of (a) making outsourcing much easier, and (b) enabling automation for a lot of jobs. A lot of jobs that have been lost by (a) and (b), are ‘solid middle class’ jobs that used to pay decent salary and benefits (for example, a radiologist, which used to be a good paying job even till the 90′s, has been heavily outsourced and/or automated).

In general, we can only expect the trend to increase over time. Even if a job cannot be fully outsourced or automated, it can always be split into parts which can be (for example, HR). Therefore, all future recessions will be more or less, “jobless”. Unfortunately, while we can at least imagine a labor force that is fully outsourced or automated, it is not possible to have a free market system without a vibrant consumer base.

Here’s a good book that explains the process : http://www.amazon.com/gp/product/1448659817/ref=cm_cr_asin_lnk

peter_griffin on March 14, 2011 at 3:21 PM

I am merely pointing out that it was governmental intervention in the marketplace that began the process.

Chip on March 14, 2011 at 3:14 PM

Well, technically the first person who ever thought up the idea of giving someone a loan was the guy who *really* began the process. I think that was a caveman named Oog. I blame Oog.

Proud Rino on March 14, 2011 at 3:16 PM

There are times when you really have to wonder why the Leftist-Oppressives think of themselves as the smartest people in the country – this is one of those times.

Why don’t you try displaying your supposedly vast intelligence and tell us all how we are supposed to get out of this mess without destroying the economy with oppressive taxation?

Chip on March 14, 2011 at 3:23 PM

Long term, we have to come up with a system that preserves the consumer base in the face of rampant outsourcing and automation. Till date, we have not been successful in doing so, hence the slow recovery (industries cut jobs to improve profits in a lousy economy ==> less consumers ==> even lousier economy). Mind you, I am not criticizing the companies that do the job cutting / outsourcing – their hand is forced by the nature of free market system. If they did not cut jobs while their competitors did, they would be removed from the market.

peter_griffin on March 14, 2011 at 3:24 PM

He kept rates at ridiculously low levels for way too long.

angryed on March 14, 2011 at 3:16 PM

This, and all who shouldn’t ever have qualified did ‘buy’ homes, took out double and triple loans, wasted the money, and etc. GWB, Greenspan, and the continuation of Fannie/Freddie under Obama are all to blame.

Schadenfreude on March 14, 2011 at 3:25 PM

Greed, naivete, PC and Utopian idealism did it.

Schadenfreude on March 14, 2011 at 3:27 PM

There are times when you really have to wonder why the Leftist-Oppressives think of themselves as the smartest people in the country – this is one of those times.

Why don’t you try displaying your supposedly vast intelligence and tell us all how we are supposed to get out of this mess without destroying the economy with oppressive taxation?

Chip on March 14, 2011 at 3:23 PM

Indeed, they think of wealth as “magic candy” that punks like our Dear Leader can dish out at will. We can see it in the willful stupidity you’re reacting against.

ebrown2 on March 14, 2011 at 3:27 PM

peter_griffin on March 14, 2011 at 3:21 PM

You’ve got things pretty backward. By reducing the number of people it takes to do a job, you free up workers to do other jobs, increasing production. Similarly, importing lower cost labor (outsourcing) also increases productivity. Increased productivity reduces real costs and everyone is better off.
The real problem that causes unemployment is that wages get frozen in at above market level. The price of labor is too high, and we have way too many government regulations in place that keep them from adjusting to market level at any reasonable speed.

Count to 10 on March 14, 2011 at 3:32 PM

peter_griffin on March 14, 2011 at 3:24 PM

The system you are looking for is “an economy without unions” for the most part.

Count to 10 on March 14, 2011 at 3:34 PM

There are times when you really have to wonder why the Leftist-Oppressives think of themselves as the smartest people in the country – this is one of those times.

Why don’t you try displaying your supposedly vast intelligence and tell us all how we are supposed to get out of this mess without destroying the economy with oppressive taxation?

Chip on March 14, 2011 at 3:23 PM

Indeed, they think of wealth as “magic candy” that punks like our Dear Leader can dish out at will. We can see it in the willful stupidity you’re reacting against.

ebrown2 on March 14, 2011 at 3:27 PM

I get the feeling sometimes that Proud Strawman just has some stock in the Pharmaceutical trade and is just trying to drive up aspirin sales with her (?) postings.

Chip on March 14, 2011 at 3:40 PM

I don’t need to post links to sites that agree with my opinion. It wouldn’t change your mind and it wastes my time.

Well, data might change my mind. Provide a scholarly source, that might change my mind if *it* has some data.

Greenspan had a long stint at the helm of the Fed and we were prosperous during that time for the most part.

Correlation is not causation.

I believe that he would have handled the “crisis” better if he would have been there in 2008 but I would say that he and others did get lazy.

Except that the crisis had been slowly developing since the mid 90s when OTC derivatives started to get out of control, and it really started to get out of hand in the early 00s at the end of the tech boom, and he was asleep at the wheel, still denying that ****any**** regulation of OTC derivatives was necessary, still not seeing the flaw in his worldview that he later realized.

I spent 15 years at Lehman Brothers and lost most of my pension because of this “crisis” and I don’t blame Greenspan.

Vince on March 14, 2011 at 3:16 PM

Like any massive catastrophe, trying to blame one person or one event is silly. I don’t blame Greenspan entirely. I don’t blame your old boss Dick Fuld. But they failed in certain respects. Greenspan was trusted as not just Chairman of the Fed but was called “The Oracle,” our financial guru. We trusted his judgment on everything and we ignored what was a massive crisis. Greenspan should have known better, Rubin should have known better, Summers should have known better.

They didn’t set the house on fire but they left the matches next to the pile of oily rags.

Proud Rino on March 14, 2011 at 3:51 PM

but even after the machinations of unregulated markets helped pitch the nation into recession

That’s like saying the automobile tires helped pitch it into a tree.

Government forcing absurdly cheap mortgages rates, buying them and then passing them through the financial system initiate the recession. Borrowing and printing trillions to keep the recession from running its course as a brief depression (hitting those responsible for it the hardest) has resulted in the costs being passed along to us all as a looming flood of taxes and inflation that American know is coming in one form or another. Why risk investing in what, if successful, will likely be sacrificed to service the debt? Why hire when Obamacare and new regulations may turn businesses into a mini welfare states for the new employees? This is not rocket science. We know why there is little recovery.

elfman on March 14, 2011 at 3:51 PM

elfman on March 14, 2011 at 3:51 PM

That brings up another point: the main reason for the bailouts was basically that there was no mechanism in place for the banks to pass the mortgage losses on to their depositors. Either they stayed afloat, and everybody kept all of their deposited money, or they went under, and the FDIC would collapse under the weight of paying the full value of deposits up to the cap.
We, as depositors, were benefiting from what the banks were doing with the money we lent them, so we should have felt the bite when those investments went bad.

Count to 10 on March 14, 2011 at 4:05 PM

I’m no finance whiz. But say I have a business (I do), and assets to put into it. Start recession, sales go way down, I must lay off people. I’m lucky to stay afloat.

All the rules change. I’d like to invest in my business, but I can’t calculate employment costs due to øbamacare. I can’t anticipate tax costs. With gas rising, and incompetence on the energy front, I can’t anticipate raw material, utility, or shipping costs. EPA imposing crazy rules right and left. How am I supposed to figure out if investing makes sense?

I have $ – do I throw it mindlessly into my business to be “patriotic”, or keep it because I’m afraid I will desperately need it, sooner than later? Guess.

jodetoad on March 14, 2011 at 4:09 PM

Don’t trust the Kenites

True_King on March 14, 2011 at 4:18 PM

Count to 10 on March 14, 2011 at 3:32 PM

Well – what you said sounds good in theory but has not yet materialized in practice. For example, when a radioligist’s job is automated / outsourced away, that person has to retrain immediately in order to remain employed. That takes time and money, at a time when they may already be paying college loans. For a knowledge worker to retrain, it takes roughly 4 – 5 years. In the meantime – who pays his mortgage? Who does the “consuming” in his absence?

I am really talking about a future economy where the trend towards automation may reach a point where the net jobs displaced by machines cannot be substituted by humans because they either lack the training or because the computer / software is sufficiently intelligent to make the right decisions without human intervention. Think it’s too far fetched? Look at Deep Blue, Watson – and then think again. How many people in the US are doing jobs that are truly innovative and cutting edge?

peter_griffin on March 14, 2011 at 4:41 PM

Count to 10 on March 14, 2011 at 3:32 PM

Also – with respect to your point on outsourcing, it may come as a surprise to you that the jobs that are outsourced are usually the primary targets for automation. A lot of IT support jobs that have been outsourced are being replaced by smart software with AI capabilities. They still do not pass the Turing test (fooling a human to believe they are human), but they are coming really close.

peter_griffin on March 14, 2011 at 4:44 PM

— but uncertainty about what?

That’s just priceless!!!

Well, we’re, ummmm, frankly, a bit uncertain about that.

Pablo Snooze on March 14, 2011 at 4:55 PM

The basic problem of the collapse was government intervention, not a lack of regulation, although the latter contributed in part to the damage on the way down.

The basic problem of the near-collapse was fraud, from the private sector.

What is it called if someone writes a credit default swap with no intention of paying off, because it’s impossible to pay off? What do you call it when you bundle mortgages into a security, more than once–in two or more different bundles?

Fraud.

Emperor Norton on March 14, 2011 at 5:12 PM

That brings up another point: the main reason for the bailouts was basically that there was no mechanism in place for the banks to pass the mortgage losses on to their depositors. Either they stayed afloat, and everybody kept all of their deposited money, or they went under, and the FDIC would collapse under the weight of paying the full value of deposits up to the cap.
We, as depositors, were benefiting from what the banks were doing with the money we lent them, so we should have felt the bite when those investments went bad.

Count to 10 on March 14, 2011 at 4:05 PM

Yes, we should have let the banks fail. And if we had more than (was it $100k) in each bank, we deserved to have lost it. I’m guessing that the price to keep the FDIC afloat would have been a small fraction of the trillions we have spent to keep the banks afloat.

I wrote at the time that the crisis of failing banks could probably be managed through new powers to temporarily operate them through bankruptcy. That would have been expensive, but not multi-trillion dollar expensive. Invasive, but not Financial Reform Bill invasive.

elfman on March 14, 2011 at 5:18 PM

peter_griffin on March 14, 2011 at 4:44 PM

Here’s a trend I like: Software Is Replacing Lawyers…

slickwillie2001 on March 14, 2011 at 5:22 PM

slickwillie2001 on March 14, 2011 at 5:22 PM

Oh I am sure a lot of us do :). I also love AI replacing (1) HR functions (who wants to deal with the mean HR person for your travel expenses) (2) IT functions (no more being placed on hold while someone tries to juggle 20 calls at the same time) (3) program managers (whose only job is using “soft skills” to make sure things are on schedule). And if computation speeds up as has been happening for the last 30 years, it soon will.

peter_griffin on March 14, 2011 at 5:38 PM

Isnt this a bit like the pot calling the kettle black? Didnt greenspan go hog wild in the early part of the century with the mobney printing? Deja vu? All over again?
The definition of insanity?

paulsur on March 14, 2011 at 6:08 PM

The economic reality of all the repression that the Obamacrats are imposing on our economy is their ‘solution’ to this repression — offer almost no interest loans to get (sucker?) businesses into looking past the upcoming Obamacrat taxes and regulations for the short term of ‘free money’ (low interest loans).

Successful businesses don’t operate that way. If there’s uncertainty, that’s made part of the short and long term plan… Or your business goes broke (out of business for those Obamacrats who don’t understand what going broke means in English)… Businesses don’t get taxpayer bailouts unless they have a strong Blue factor (unions and/or other strong Blue offerings). If the Obamacrats actually had experience in the private sector, they’d know this….

drfredc on March 14, 2011 at 6:34 PM

Edward J. Pinto did a great job presenting the problem in the housing market in 2009 during his testimony Upon the Hill. The best part was an in-house analysis document done by the FDIC Division of Research and Statistics looking at the entire housing market and how it changed from the 1950′s to the then present in 1998.

It wasn’t just Fannie and Freddie, bad enough as they were, it was the securitization process that closed the cycle with Ginnie Mae. After that the housing market started to change due to the ability of large banks to take on riskier portfolios with a federal rating on them. Local lenders could not compete with the scope of the monetary capability and risk capacity of the larger firms, which pushed the S&L’s into riskier venture schemes. After the CRA and federal mandates on lending practices, the federal government could tell banks who they had to lend to, securitize loans, and then had Fannie and Freddie to absorb investment vehicles that were gaining risk due to legislation that changed the investment outlays by banks.

Banks served as an intermediary for federal policy, with brokerage houses then picking up on the ‘safe’ investment packages. When the federal government changed its stance on lending so as to push the market towards riskier loans, it authorized Ginnie Mae to score them so as to reduce the risk with Fannie and Freddie again taking part. Fannie and Freddie then lobbied Congress so as to further expand the high risk portfolio area, knowing that such packages would get high marks from Ginnie Mae as they were following the mandatory lending practices put in by statute.

Greenspan most certainly saw these changes in the risk assessment arena and did, basically, nothing. Yet the housing market was being distorted not only by those factors, but by the advent of IRA’s becoming the safest vehicle for investment and savings due to their immunity to bankruptcy proceedings. From that homes went from low risk investments (it was a place to live) to higher risk ones as there are lesser protections on a home for bankruptcy proceedings than an IRA. While homes had traditionally risen at a very low rate prior to the advent of Ginnie Mae, after that there was an expectation of greater performance… which was leading to more foreclosures… which is why the FDIC started to examine the market.

You can’t get to Bear-Stearns, AIG, Lehman Brothers, et. al. without the injection of federally backed risk packages into the home mortgage market… and that took multiple steps, all starting with Ginnie Mae.

ajacksonian on March 14, 2011 at 7:34 PM

three times in recorded history….

Man… learned to grow crops …didn’t need to forage… civilization begun

Industrial age…… man leaves the field and builds with machinery

Information Age…….??????? where will it go……..

consider this……… it took 20 thousand years for the world to reach 1 billion consumers…… another 20 to reach 2 Billion…… there will be another 1 billion new consumers in the next 5 years ……. do ya really think the old systems are going to hold up…… the opportunities are mind staggering and we have a government that wants to turn back the clock….. good luck with that

roflmao

donabernathy on March 14, 2011 at 7:42 PM

The derivative markets on those assets certainly created their own problems, but they wouldn’t have collapsed the economy on their own had government not artificially and unsustainably inflated home values and incentivized consumers to spend beyond their means on mortgages. The basic problem of the collapse was government intervention, not a lack of regulation, although the latter contributed in part to the damage on the way down.

Fannie and Freddie are “fundamentally sound, not in danger of going under.’’- Bawney Fwank in July, 2008 long after Bush wanted to create more regulation through the Treasury on Fannie and Freddie.

In an effort to increase homeownership, the Clinton administration in the late 1990s and the Bush administration in the 2000s pushed Fannie and Freddie to meet growing quotas for buying affordable home loans. Those pushes, combined with a drive for more profits at the enterprises, drove Fannie and Freddie to take on more risk and more debt. They backed subprime and other risky loans, including mortgages for borrowers without proof of steady income.

But Frank and other Democrats still opposed tighter regulation, Frank most notably in his public statements saying there was nothing wrong with Fannie and Freddie. He and other House Democrats also sent a letter to President George W. Bush in June 2004, saying the proposed crackdown could “weaken affordable housing performance . . . by emphasizing only safety and soundness.’’

So he initially supported a Republican measure in 2005 that would have imposed stricter standards on the lenders. But he voted against it in the full chamber because it did not include funding for affordable housing, he said.

From personal experience- we knew the houses were ridiculously overpriced, but we also knew we were positioned better to pay a mortgage than many friends who had already attained theirs. If it kept going up as it was, we would have been priced out of the marketplace in six months. We jumped in and are now underwater to the tune of nearly $200k. We’ve never been late on a mortgage payment, although rice and beans is a standard food source. The thing is- now, even if we had lots of money to put down we wouldn’t qualify for the few loans being offered. So in a way we’re lucky to have made it in before the big splatter. Hopefully we can ride this out and sell at the next peak, rent until the bubble bursts again, and buy a better home at that point.
Lots of uncertainty all around. And we’re just getting started on the economic roller coaster that’s been unleashed!

NTWR on March 14, 2011 at 7:50 PM

The basic problem of the near-collapse was fraud, from the private sector.

What is it called if someone writes a credit default swap with no intention of paying off, because it’s impossible to pay off? What do you call it when you bundle mortgages into a security, more than once–in two or more different bundles?

Fraud.

Emperor Norton on March 14, 2011 at 5:12 PM

Sorry. I love you buddy, but you’re wrong. Government distortion of the market allowed the fraud to take place. The mortgage market in this country worked very well for decades before this happened. All the bankers didn’t wake up one morning and decide to become crooks. The wave of bad mortgages was caused by the government demanding that they be written. Once they were written, anybody who really understood what was going on wanted to get rid of them. Hence, they were bundled into ‘securities’ and sold to the unwary with the help of Fannie and Freddie. The governments fingerprints are all over this every step of the way, from the initial requirement of these mortgages, to the lack of regulation, to the assistance of Fannie and Freddie.

I’ll say this again. It defies logic and reason that an entire industry of professionals that operated well for a very long time would all just decide to run amok one day with some outside influence operating on them.

trigon on March 14, 2011 at 7:55 PM

one day without some

trigon on March 14, 2011 at 7:57 PM

Can you imagine the love child he and Henry Waxman would bear? Yuuuuuuck!!

leftnomore on March 15, 2011 at 4:58 AM

Furthermore, the mainspring of the 2008 meltdown wasn’t a lack of regulation on Wall Street, but massive government interventions in the housing market that Fannie Mae and Freddie Mac then passed along as securities.</blockquote

No.. This is not what happened. Fannie and Freddie did not precipitate the crisis. They were players yes but hard to blame them and the governement. In 2006 the entire subprime market was $600B and Fannie and Freddie held about $168B of that market. The mortgage backed security market is estimated at around $7.3T. Think of something else.

lexhamfox on March 15, 2011 at 4:41 PM