Busted coverup of the day: Greenspan's censored Ph.D thesis

Jim McTague has the scoop:

WE'VE FOUND IT -- A COPY OF ALAN Greenspan's long-lost Ph.D. thesis! Or, more accurately, a rare copy of the elusive document, in Lassie-Come-Home-fashion, found us.

The dissertation, written in 1977 when Greenspan received his coveted degree from New York University, had been tucked away on a professor's sagging bookshelf for 31 years.

There are only two known copies: the Maestro's own and the one we viewed. As far as we can tell, Barron's is the only news organization ever to have seen the thesis since a third and now missing copy was removed from the public shelves of NYU's Bobst library at Greenspan's request in 1987, the year that Ronald Reagan appointed him chairman of the Federal Reserve Board. Glancing at the document, we momentarily felt like Indiana Jones at the dramatic moment in which he discovers the Lost Ark of the Covenant.

Greenspan purportedly was trying to deter news coverage of his personal life when he ordered the thesis into hiding. His anti-paparazzi subterfuge backfired: The stealth thesis became red meat for his critics, who smelled a cover-up. Magazine articles and a new book, Deception and Abuse at the Fed (reviewed here on March 31), have suggested that his degree was largely honorary and that the thesis was a cut-and-paste job, comprised of previously published, non-academic articles wrapped in a flimsy introduction.

Greenspan ... didn't foresee a housing mania spilling into the general economy, toppling banks and brokerage houses and paralyzing key portions of the credit system. The worst he could anticipate was that a sharp "break in prices of existing homes would pull down the prices of new homes to the level of construction costs or below, inducing a sharp contraction in building." Back then, there were no home-equity lines of credit, derivatives or subprime mortgages. Mortgages were largely concentrated at savings and loans. Credit was harder to come by, too, because conventional mortgage rates were about 8.5% and headed significantly higher. Still, the thesis shows that the former Fed boss was focused on housing very early in his career. Thus, it casts doubt on his recent assertions about being surprised by the Mesozoic-era-size impact of this decade's housing mania.

We were tickled to find that the work's introduction includes a discussion of soaring housing prices and their effect on consumer spending; it even anticipates a bursting housing bubble. Writes Greenspan: "There is no perpetual motion machine which generates an ever-rising path for the prices of homes."

Sure to draw snickers from snarky critics is chapter five on economic policy and outlook -- part of 1977's unsigned Economic Report of the President. Greenspan claims to have authored it as CEA chairman. The general policy principles discussed in the chapter include the following: "Stimulus should be provided by tax reduction rather than by increases in government spending; tax reduction should be permanent rather than in the form of a temporary rebate; economic initiatives should be balanced between measures to stimulate consumption and those designed to increase business investment."

Greenspan also broke new ground in the introduction to his thesis, where he noted that homeowners were refinancing for larger amounts than their original mortgage, in essence monetizing increases in their home's market value and spending the excess cash on goods and services or putting it into savings. Economic models at the time had missed the trend.