Tuesday, August 07, 2007

Bernanke smarter than Greenspan

I posited this to my colleagues during Bernanke's confirmation process, getting some wait-and-see shrugs in response. Now Eddy Elfenbein ramps up his polemic against Greenspan:

Well, let’s take a look at what he has to say. Here the maestro defends himself against the charge of bring interest rates too low:

Mr. Greenspan raised vague fears with colleagues over the possibility this policy could create distortions in the economy, but he says today that such risks were an acceptable price for insuring against deflation. “Central banks cannot avoid taking risks. Such trade-offs are an integral part of policy. We were always confronted with choices.”

Oh dear lord. This is a completely meaningless answer. We know you face choices, Alan, so does everybody else. The question is, “were those choices correct?” As usual, he refuses to acknowledge his mistake.

But that’s not all—and this is the most maddening part. Greenspan now admits that he was the one who was really concerned about a real estate bubble all along. Honest he was.

Looking back, he says today: “We tried in 2004 to move long-term rates higher in order to get mortgage interest rates up and take some of the fizz out of the housing market. But we failed.”
This is a stunning statement. Did it ever occur to him that he failed in large measure to his initial non-mistake? His answer is equal parts disingenuous and disgraceful. First, the Fed has no business managing mortgage interest rates. Yet in 2004, it was Greenspan who urged investors to get adjustable-rate mortgages.
UPDATE: WSJ econ blog has a roundup here.

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