Is Alan Greenspan to Blame for the Current Economic Crisis?

To the creator of PennyJobs, Curtis, the answer — clearly — is an emphatic YES!!!

What About Greedy Bankers?

Some like to point out that Wall Street creating the easy home securities like ARM and sub-prime loans, but realize that Wall Street would not have been able to create these things if Alan wouldn’t have allowed interest rates to drop well below market rates.

Its Official, Alan Greenspan Is To Blame | PennyJobs

Not sure I agree with the statement (it seems like a circular argument), but I, too, place a lot of blame on Greenspan and the Federal Reserve. And my opinion isn’t influenced, in this case, by the fact that I think the Fed does too much. It’s based on the idea that one of the, if not THE, central functions of the Federal Reserve is to regulate banks and other financial institutions.

The Fed failed in its oversight of the banks; in fact, they encouraged risky behavior. I think they were of the mind that all of these “derivatives” were reducing — if not eliminating — the risk naturally inherent in risk-based securities. After all, mortgages, for example, have inherent risks and their priced almost solely according to this risk (in the form of the interest rate).

A simple economic lesson: Higher interest rate = Higher perceived risk

As interest rates dropped to historically low numbers, the market clearly perceived lower risk. But people still lose jobs, hurricanes still happen, blight still occurs.

As the bubble inflated, more and more people pumped more and more air into it. As a bubble expands, it becomes more likely to burst.

And BURST it did.

It would be interesting to know what the money multiplier was during the early 2000s versus other 5- or 10-year periods. I would guess that it was rather high.

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6 Comments

  1. JoRx says:

    Thanx you babys 🙂 good good wice..

  2. I think there are many factors contributing to the economic crisis, and greed is certainly a huge one, but not just from a few, from a lot of people, including us.

  3. bims says:

    thanx you… good post.

  4. Greed was probably the one overwhelmingly necessary factor leading to the current conditions. No individual can alone be blamed for it all. I would say it’s a blend of big business money and conspicuous consumption by the general public (even when well above our means).

  5. it is really nice post with have good info.keep it up…..

  6. alyans says:

    thank for sharing

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