Articles by The Economist’s U.S. Economics Editor
by Greg Ip
[Washington Post Outlook Section, Dec. 20, 2009]
Countless delusions and mistakes brought on our financial crisis, but none did as much damage as the belief that home prices never go down.
People have long seen real estate as a safe investment. The notion is intuitive – the supply of land is limited, and the population is always growing – and until 2007, national home prices had not fallen significantly since the Great Depression.
Yet at the start of this decade, this belief became the lynchpin of an entire investment philosophy, as survivors of the dot-com bubble sought a refuge for their money. Read the rest of this entry »
The original post is linked here.
ALAN GREENSPAN’s defence of the Federal Reserve in the formation of the housing bubble restates a familiar argument—it raised short-term interest rates but long-term interest rates did not follow, and housing is most sensitive to long-term rates. His proof includes the fact that long-term rates were low worldwide, and that many countries had bigger housing bubbles than America. The housing bubble’s source must therefore be global.
I agree with this analysis but I don’t agree that it exonerates the Fed. Read the rest of this entry »
WASHINGTON — When Ben Bernanke was nominated to head the Federal Reserve in 2005, he promised to “maintain continuity with the policies and policy strategies established during the Greenspan years.” But in handling his first financial crisis, Mr. Bernanke shows signs of a break with Alan Greenspan, the Fed’s chairman from 1987 to 2006.
The original article is linked here.
Alan Greenspan was arguably the country’s most powerful financial cop in his 18 years as chairman of the Federal Reserve. But Mr. Greenspan’s regulatory record has received far less scrutiny than his management of the economy.
That may be changing. A former colleague says Mr. Greenspan blocked a proposal to increase scrutiny of subprime lenders under the Fed’s broad authority. That added scrutiny might have helped curtail questionable lending practices now blamed for soaring defaults by mostly low-income borrowers. Democrats in Congress are now turning up the heat on regulators, especially the Fed, for failing to do more to stamp out those practices, and the Fed appears increasingly likely to overhaul its approach.
![[Alan Greenspan]](http://s.wsj.net/public/resources/images/HC-GG772_Greens_20070524133642.gif)
Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr. Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies. Read the rest of this entry »
Mr. Bernanke Tries to Push Democracy at Central Bank; Setting Inflation Goals — A ‘Two-Handed Intervention’
By Greg Ip
2480 words
8 September 2006
The Wall Street Journal
A1
English
(Copyright (c) 2006, Dow Jones & Company, Inc.)
At Federal Reserve meetings under Alan Greenspan, the chairman would state his recommendations for interest rates. Then the 18 other policy makers would say if they agreed. They usually did.
After Ben Bernanke took over in February, he made some subtle but significant changes. When Fed officials debate the interest-rate decision, he speaks last. Fed officials say it makes them feel freer to talk about what’s on their minds, rather than responding to the chairman’s views. When Fed policy makers submitted their projections for growth and inflation as part of a twice-a-year report to Congress, Mr. Greenspan wouldn’t submit his own. Mr. Bernanke does.
These changes inside the Fed’s policy-making body, the Federal Open Market Committee, are manifestations of an important shift under way in the world’s most powerful economic institution. Read the rest of this entry »
By Greg Ip
1151 words
19 September 2005
The Wall Street Journal
A2
English
(Copyright (c) 2005, Dow Jones & Company, Inc.)
LAST MONTH, an Australian newspaper proposed a novel candidate to succeed Alan Greenspan as Federal Reserve chairman: Ian Macfarlane. Though an unknown in the U.S., Mr. Macfarlane has something no other candidate can boast: a track record that rivals Mr. Greenspan’s. Read the rest of this entry »
Greenspan’s Legacy — The Deregulator: A Less-Visible Role For the Fed Chief: Freeing Up Markets — Greenspan Blessed Mergers And Blocked Regulation; Using the 1800s as a Model — Is Modern Finance Too Risky?
By Greg Ip
2836 words
19 November 2004
The Wall Street Journal
A1
English
(Copyright (c) 2004, Dow Jones & Company, Inc.)
[Second of Two Articles]
WASHINGTON — As Alan Greenspan approaches his last year as chairman of the Federal Reserve Board, he continues to draw praise for his most visible job: steering the economy by raising and lowering interest rates. But behind the scenes, the 78-year-old economist has had a big impact on American life in an entirely different role: pushing the government to stay out of financial markets.
Consider what happened in 2002, when Democratic Sen. Dianne Feinstein proposed new rules to govern how traders buy and sell contracts to deliver energy through financial instruments known as derivatives. Her move came after Enron Corp. and others helped send electricity prices soaring in California by manipulating that market. When she telephoned Mr. Greenspan for support, he declined, telling her the proposal threatened the multitrillion dollar derivatives industry, which he considers an important stabilizing force that diffuses financial risk.
Mr. Greenspan persuaded other Bush-appointed regulators to join him in a critical letter that Sen. Feinstein’s opponents wielded as a weapon on the Senate floor. The bill was narrowly defeated on a procedural motion. Sen. Feinstein reintroduced the proposal a number of times and at least twice Mr. Greenspan rallied fellow regulators to oppose it. “I believe it would have passed without his opposition,” Sen. Feinstein says.
In addition to thwarting the post-Enron impulse to regulate derivatives, Mr. Greenspan has helped remove Depression-era barriers between the banking and securities industries and has blessed mergers creating banking behemoths. He has implored regulators to keep their hands off hedge funds and other markets that are replacing banks as financiers of American business. Although the Fed is a major bank regulator, it has become a less intrusive one under Mr. Greenspan.
Click here to read the entire article.
For 17 years, Mr. Greenspan has deftly steered the American economy by relying on two strengths: an unparalleled grasp of the most intricate data and a willingness to break with convention when traditional economic rules stop working. In an era when economics is increasingly driven by mathematical models and politics by dogma, Mr. Greenspan rejects both.
Read the full article here.
