Alan Greenspan has written an article in the Wall Street Journal on the ongoing mortgage crisis in America.
In it, he lays the blame for the crisis on almost everything else (including the collapse of the Soviet union) but for his own actions of keeping rates too low for too long as the Fed Chairman, even at times expressing helplessness.
Read this excerpt for an example
There was clearly little the world’s central banks could do to temper this most recent surge in human euphoria, in some ways reminiscent of the Dutch Tulip craze of the 17th century and South Sea Bubble of the 18th century.
There is a clear unwillingness to take responsibility for the consequences of the Fed’s actions (or should I say inactions). I would tend to agree with Mark Thoma who at the end of this post says
Was the crisis his fault? I wouldn’t go that far. Could he have done more to prevent it or reduce its severity? Here I think the answer is yes.
While Greenspan laments the lack of control that central banks had on long term interest rates, most of the crisis has been caused by loans taken on very low adjustable rate mortgages (ARM) which in turn fueled a rise in asset prices to bubble type levels. ARMs are marked to short term interest rates, which have a more or less direct relationship to central bank policy action.
On this count too, the maestro seems to have got it wrong.
Finally, the punchline is delivered by Paul Krugman who says that
He once described Greenspan like a man who suggests leaving the barn door ajar, and then - after the horse is gone - delivers a lecture on the importance of keeping your animals properly locked up.
That’s right. It was the ARMs that tipped the balance this time.