The Greenspan jinx

Once-in-a-lifetime events seem to be happening suspiciously regularly for Alan Greenspan, says Caroline Baum.

Alan Greenspan has presided over more 100-year events in the last 20 years than the rest of us do in a lifetime. As chairman of the Federal Reserve from August 1987 through January 2006, the Maestro was ahead of the pack when he sniffed out a secular increase in productivity growth, the result of a "once-in-a-lifetime" technological boom. But if he was right about productivity, he was wrong about the policy prescription.

"Prices should have fallen" as companies are able to produce more with less, said Paul Kasriel, chief economist at the Northern Trust in Chicago. "He fought it tooth and nail. The money had to go somewhere. It went into Nasdaq stocks." The burst tech-stock bubble exposed a rash of corporate malfeasance and accounting scandals. An "infectious greed seemed to grip much of our business community", producing a "once-in-a-generation frenzy of speculation that is now over", Greenspan told Congress on 16 July 2002. Even as he was declaring an end to that generational frenzy, another was already unfolding. Millions of condo flippers were riding ultra-low interest rates to ultra-high profits, extracting equity from their homes in the process. Now many homeowners owe more than their house is worth. Of course, Greenspan argued against the idea of a "bubble in home prices for the nation as a whole", conceding only "signs of froth in some local markets". At the time, home prices were rising at 15% a year.

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