Blame Federal Gov't, Not The Fed, For Subprime Mortgage Problems
By Jeffrey Rogers Hummel and David R. Henderson

From the article:


These guys are libertarian thinkers.

It's good to see that not all people in our neck of the woods demonize Greenspan. I personally admire the guy.

Of course it set some libertarian blogs to spinning in overdrive. I even came across this because I subscribe to the Mises newsletter and there was an article by George Selgin dealing with this called Guilty as Charged. Although Selgin did not agree with Hummel and Henderson, he did make some intriguing statements:


I am passing over all the technical stuff in this post because my point is on scapegoating, not monetary theory. It's time for the scapegoating to stop and this is a refreshing contrast to a horrible scapegoating analysis by a recent ARI Op Ed:

The Maestro vs. the Market
By Alex Epstein and Yaron Brook


Manipulator-in-Chief? Market he manipulated? Intellectually dishonest? Chinese censor?

Gimmee a break!

This crap shows an appalling lack of understanding of what the Fed does and how it functions in addition to the scapegoating. The oversimplifications in that Op Ed are embarrassing.

Getting back to the position taken by Hummel and Henderson, I am heartened to see some very knowledgeable economists of the free-market persuasion discussing these issues by looking at them from an angle that does not simply repeat slogans, ignore technology or scapegoat a single person.

I am convinced that globalization and informatics require some deep economic premise-checking, just like the information revolution on the Internet requires some deep intellectual property premise-checking. There are some new principles that need to be looked at, such as man-made abundance is man-made, but it is also abundance. Currently there is such a huge amount of abundance that it creates a context all its own, with its own nature. Also, instantaneous delivery mechanisms require instantaneous access to assets, and this demands a freer access than those stored with geographical limitations (i.e., physically), but by doing so, new assets are created exponentially. This goes for both information and capital.

This is not to say that private property no longer exists or anything of the sort. But property never had instantaneous delivery built into it before, so the nature of certain kinds of property is changing. The good news is that this creates real wealth in an enormous amount of abundance.

Anyway, this is a different discussion and a long one. Leave it to say that I believe that Greenspan managed to incorporate this new reality of informatics and abundance in his thinking, saw an opportunity to make a lasting difference, and did a brilliant job of implementing it in practical terms.

He was a pioneer.

Pioneers make mistakes and Greenspan was no exception. When dealing with enormous abundance with immediate access, a small mistake has enormous impact. (I believe encouraging too much credit on flimsy assets was one.) But pioneers also blaze trails. The trail Greenspan blazed is here to stay and we are all living with a huge amount of wealth we don't even acknowledge because of it. We just take it for granted as we pull out our plastic or punch in numbers to pay for stuff we never imagined possible 40 years ago except in science fiction.

So it is good to see intelligent free-market people starting to embark on this new path to see where it leads. The scapegoating and oversimplifying mentality will eventually be left behind as Greenspan's bountiful legacy becomes clearer to later generations. Still, it's an irritation to see primitive tribal attitudes flourishing under the banner of reason.

Michael

Michael,

Greenspan simply didn't appreciate or maybe even understand the take-away-the-punchbowl-when-the-party-gets-going responsibility of his job. He firehosed the fires of economic contraction with the gasoline of liquidity until he left the job which then proceeded to blow the economy up in everybody's face. Congressional contributions only made it worse. The downside of the business cycle has a necessary function which is now asserting itself in a grossly destructive way world-wide. It was misuse of debt that got us here. It is the misuse of debt that is now making it all much worse. The empire of debt needs to be replaced with the empire of capital and freedom.

--Brant

Brant,

It's a theory, one that I used to hold, but I am no longer convinced it is correct. The problem is scope once again.

Just look at one issue I raised. How do you make capital represent products that have instantaneous delivery and exponential short-term increase of volume without allowing capital to have a similar instantaneous delivery and increase of volume? Lower prices can only absorb so much, and, as a standalone policy, it works better with physical products. The computer explosion is a good example of that (hardware, I mean). But it was not exactly a standalone policy. Even those lower prices would not have been so low unless capital was instantaneously and abundantly available, as the impact is offset by the explosion of new people joining the computer world every day. Their existence requires capital so they can buy stuff.

I am convinced that Greenspan did, as a gross metaphor, 999 brilliant things and one slip.

I prefer to look at the 999 brilliant things and try to understand the slip properly and fix it than throw the whole thing away. Throwing it all away won't work in the present world anyway.

Michael

If you are saying debt has a necessary role in an economy I certainly agree with you, but it got completely out of hand.

I don't know how many brilliant things he did but his reputation was seductice so they just helped make it worse.

You want to "fix" the Federal Reserve? There is only one thing it is good for right now: to inflate away all the tremendous debt the government is now obligated for. Two extra trillion and counting. After that disaster impoverishes the country, we can afford to get rid of central banking.

There are other ways to destroy that debt. Sell off Federal assets, especially land. Deregulate the economy. Get rid of taxes on business profits, capital gains taxes and inheritance taxes. Replace the income tax laws with a simple, flat tax. Etc.

BTW, he didn't slip once. He slipped several times.

--Brant

Brant,

Just to be clear, the Fed is not the cause of the USA debt. Government spending is.

The Fed is also not the cause of the subprime mortgage crisis. Direct government intervention in bank customer standards was, and that travesty was further developed by creative private financial sector lunacy in inventing weird asset surrogates fueled by raw greed for the unearned in overdrive.

Greenspan was not involved in making the government's budget, nor involved in setting governmental customer screening regulations for private banks.

We agree on that, no?

Michael

Mostly. As far as it goes. It doesn't go far enough. Essentially he drove interest rates down way too much after the 2000 stock market top starting with the initial NASDAQ collapse of 1/3 in April and left them down way too long trying to avert a recession. There are others items worthy of mention but I'll just mention Bill Fleckenstein's book "Greenspan's Bubbles." The present regime of Paulson and Bernanke with the help of Congress is making the basic problem incomparably worse.

Greenspan is no devil, just a central banker in over his head. Most of them have been, with the very notable exceptions of Volker and Martin. It's the nature of socialism applied to the financial life-blood of not only the United States but the world. I don't deny that if I had had Greenspan's job there might be a disparaging book or two about me now out too.

Then there's George Bush. Never went to war as a young man. Neglected his education. Not even an autodidact which I've always been. If you aren't one you're basically brain-dead.

--Brant

Rand had her creation, Dominique Francon, aver that "men had been so mistaken about the shapes of their Devil — he was not single and big, he was many and smutty and small."

Greenspan is one of many, central bankers all, who used and abused the legal privilege of creating money out of thin air — one that does not exist without coercion and the threat of it, in the form of legal tender laws. And which depends upon legally permitting fractional-reserve banking — and the presumption of depositors and borrowers owning the same money in the same respect at the same time — to not be treated as what it is, which is fraud.

He let his intellect descend into the gutter of intellectual smut, by debasing anything he ever proclaimed in Rand's presence (and in her book) about objective values and a gold standard. If he'd had a shred of integrity, he never would have become a government functionary, abetting the reputation of central-bank thievery. Along the way, in every news story about him, he has brought Rand and her ideas into more disrepute than any other human being has managed to do.

And he is small of spirit and of practical wisdom. He's as "shocked, shocked" as Louis Renault in "Casablanca" to find that when he has removed countless obstacles to larcenous behavior, unchecked by the government that is relied upon to stop and punish it, bankers and lobbyists ... well, engage in rampant larcenous behavior.

No, he's no "demon." That gives him far too much credit, even in the sense of his being beneficiary of a vivid metaphor. He is a cipher, a faceless and characterless servant of a power structure that sucked on any remains of his intellect. He is an undertaker.

You choose to praise such men, Michael. And to laud such savagery toward productive human beings as the more efficient monetizing, at gunpoint, of government debt. Especially that which is used, most of all, to support the wanton slaughter of other human beings, the furthest action possible from a free marketplace.

That says very little about a moral zero such as Greenspan, but a great deal about you.

Steve, you aren't talking about Greenspan--that is you aren't making an objective statement about his moral stature, character or whatever else you're getting out of that pinata you're whacking. Not that some of your criticisms aren't correct or close to the mark, but you've gone too far by half.

--Brant

Steve, you have gone too far. We do not host this forum to be insulted or have people we honor here, such as Greenspan, TAS, Bidinotto, Barbara and many others, insulted. Since you can't stand to disagree with the ideas without hurling your snotty-assed insults, maybe you simply don't belong here. If you wish to insult us, do it on someone else's dime and bandwidth. Your posts will be subject to review and editing from here on out.

Kat