Monday, September 17, 2007

Greenspan “didn’t really get” how dangerous the housing boom was

Former Fed Chairman Alan Greenspan’s statement sounds totally out of place, given his role in the Real Estate bubble we saw in recent years. This irresponsible attitude has received a lot of criticism already, but I think there should be more to come. We don’t usually expect words like that from someone who’s supposed to understand the economy and make sure that it’s doing well. Oh, in fact all was good indeed – for a while. This raises a number of questions, ranging from “What was he thinking when he said this in an interview?” – because he should have predicted the reaction – to “Is he lying?” – because it’s hard to believe he really didn’t understand what was going on. But I don’t have the answers.

As eyes turn toward Greenspan’s successor, current Chairman Ben Bernanke and the Fed, which will be making its decision on interest rates this week, there’s little doubt that a rate cut will be announced. Analysts are instead speculating on whether it will be a half-point or a quarter of a point cut. Whatever the Fed chooses to do will have a serious impact on the economy, even leaving the rate as it is will send important signals to the financial markets. I can feel the tension…

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