Get Over It

"I turn on the tube and what do I see a whole lotta people cryin' don't blame me. They point their crooked little fingers at everybody else. Spend all their time feelin' sorry for themselves. Victim of this, victim of that. Your mommas too thin; your daddys too fat." The Eagles - Get Over It".

Today's Wall Street Journal featured an excellent article, an interview with Alan Greenspan, in which he attempts to defend himself against acusations that he caused the housing bubble and financial system crisis. Although I am among those who believe he kept inetrest rates too low for too long, Mr. Greenspan did not react the way he did for no reason.

Lets go back to 2001. The U.S. was in or coming out of a mild recession caused by the burtsing of the tech bubble. We had the attacks of 9/11. Individuals and businesses went into panic mode. Pundits predicted more attacks and economic turmoil would be the result. Companies laid off workers, liquidity dried up and the Fed had to take the rare step of cutting Fed Funds and Discount rates in between FOMC meetings. Were things really that bad? No, not really, but many people were acting illogically.

Enter Mr. Logical, A.K.A Alan Greenspan. Mr. Greenspan knew he had to provide stimulus to get the economy over this illogical and irrational hump. His actions did help, but people were still acting illogically. No matter what stimulus Mr. Greenspan provided, job growth languished and politicos who relish a poor U.S. economy to forward their socialist agendas took full advantage of the situation (all this was caused by capitalism and Mr. Bush. The irrational and illogical behavior of the tech bubbles was, supposedly, irrelevant).

As the economy was unresponsive (or so it appeared), Mr. Greenspan lowered the Fed Funds rate to 1.00% in June 2003 and kept it there for one year (which we now know was too low too long). However, it was only too low too long because individuals, lenders and Wall Street all acted irresponsibly and, in the world of Alan Greenspan, illogically.

Never in Mr. Greenspan's logical mind did he think that consumers would be stupid enough to buy homes they could not afford (on a large scale). He could not imagine lenders writing mortgages for people who could not afford to pay them (or, even worse, did not ask borrowers to document their financial situation to prove that they could afford it). He never imagined that the rocket scientists on Wall Street would package portfolios of glow-in-the-dark loans into AAA-rated securities and that supposedly intelligent investors (including municipal finance officers, many who thus far, have been derelict in their duties in ensuring prudent investments for their constituents) would buy these things without knowing how they were constructed and what was contained within.

It is true that Mr. Greenspan's policies encouraged borrowing, but they were not responsible for bad behavior on the part of borrowers, lenders and investors. They are responsible for their own actions. They should suffer the consequences whenever it does not lead to another depression.