Greenspan is Now on the Economic Outs (Opinion)

After years of being praised for keeping the U.S. economy on track while chief of the Federal Reserve, Alan Greenspan has come under attack in the past few weeks as some scapegoat is being sought for the country’s current woes.

We confess to adding our own voice in lauding the now-retired central banker over the years.

And now that so many are wont to blame him for moves that encouraged, or at least allowed, the current recession, we’ve a tendency to defend him.

At the very least we can simply note what Greenspan told The Wall Street Journal recently: “I was praised for things I didn’t do. I am now being blamed for things I didn’t do.”

Critics have charged that Greenspan’s easy U.S. monetary policy created the current credit crisis by inflating a housing bubble.

Those same critics also say the Fed kept rates too low for too long as it sought to bolster the U.S. economy after the collapse of Internet stocks and after the Sept. 11, 2001, attacks.

In early April, Greenspan came out swinging at his attackers. He blamed professional investors for the current economic woes that have sent the country toward recession.

In an article in the Financial Times newspaper, Greenspan wrote, “The core of the subprime problem lies with the misjudgments of the investment community.”

Greenspan said he doubts tightening of regulation would have solved the problem.

“The problem is not the lack of regulation but unrealistic expectations about what regulators are able to prevent.”

What could we expect if Greenspan were still reigning at the Fed?

After saying that the U.S. economy already was in a recession, Greenspan said it would be appropriate to use public funds to resolve the mortgage-related crisis that has pulled the entire economy down.

The U.S. economy will not stabilize until housing markets recover, Greenspan wrote, but that won’t happen for months.

Greenspan thinks the Bush administration should look to the 1980s savings and loan crisis and the old Resolution Trust Corp. that was set up to liquidate assets of troubled S&Ls that had been declared insolvent. It was similar sloppy or greedy lending practices that got the S&Ls into trouble.

Maybe he has something there.