Greenspan's Wet Dream

Alan Greenspan must have a special place in his heart for Andy Beal. After all, if every banker ran their bank like Andy Beal ran his, then Alan Greenspan would not have had to repudiate his Ayn Rand-style libertarianism. From Forbes:

By September 2004 Beal Bank's assets had climbed to $7.7 billion. Then Beal stopped buying, letting his loans run off. By September 2007 assets had shriveled to $2.9 billion, one-fifth of which was cold cash. He was worried that consumers had taken on too much debt and money was being lent to companies for next to nothing. "Every deal done since 2004 is just stupid," Beal says.

He began by pulling back from home loans--even those guaranteed by Fannie Mae ( FNM - news - people ) and Freddie Mac ( FRE - news - people ). Beal thought the two quasi-government agencies were over-leveraged. When staffers mentioned their guarantees in deal presentations he would fire back that these guarantees were "worthless."

A banker whose perceived self-interest led him to abstain from the housing/credit bubble - I think Alan Greenspan might go all Andy Samberg on us. Unfortunately, Beal was the exception. Still, Beal's prescience shows that for those who cared to ask questions, the fallout from the housing bubble was fairly obvious. Hoocoodanode, indeed.

Greenspan: Don't Blame Me; Blame China

Alan Greenspan takes to the pages of the Wall Street Journal today to defend whatever is left of his tarnished legacy. His message: the housing bubble wasn't my fault; it was China's. Of course, there is a savings glut, and it certainly contributed to the credit and asset bubbles in large part. But doesn't this miss the point? Greenspan could have raised short-term interest rates to higher levels; if the 2004 hikes did not bring down long-term mortgage rates, Greenspan should have continued to raise rates (if he was truly worried about the housing bubble). It strains credulity that there was nothing the Fed could have done to pop the bubble. Doing so obviously would have meant sending a weak economy into recession - likely even a fairly nasty one - but in retrospect, it would have been better. It's easy to fall into hindsight bias, but Greenspan's own understanding of the role of the Fed as designated driver surely prevented him from taking action that at the time seemed reasonable.

Dean Baker does a good job laying out the case for the Fed targeting asset price stability in addition to its historically understood role of managing inflation. Alan Greenspan, are you listening?