Comment of the Day: Charles Steindel: Alan Greenspan Misjudged the Risks in the Mid-2000s; Alan Greenspan Was Not a Coward:
Agreed. I attended a number of FOMC meetings during the Greenspan era (not that one). This is a great example...
...of how he could summarize the situation and draw what seemed at the time, based on the available information and analysis, very compelling policy conclusions. Yes, he was wrong--but so were many other people.
The regulatory situation is another kettle of fish. I don't the ins and outs of what was going on. The key thing was that we foolishly did not believe that any mess being created in the mortgage market would have profound macroeconomic consequences (and, by the way, Ned Gramlich's book on the problems did not, as I recall, raise any macro alarms). The Fed did plenty of analysis of the potential impact of a housing price bust; the estimates were much too low (because we did not see that such a bust would also decimate the world financial system; as far as I know the Cassandras warning of doom at that time also were unaware of that threat--the mechanisms they proposed were taken into account).
The FOMC is not a financial regulator (though since 2008 they have had plenty of briefings on the financial industry, including consideration of what regulatory changes may entail). In any event, one should differentiate Alan Greenspan, FOMC chair, from Alan Greenspan, Chair of the Federal Reserve Board.
