Wednesday, April 1, 2009

Greenspan Is Guilty as Charged

The former chief economist for the Bank of International Settlements, William White, has been arguing for many years now that the root cause of our current economic turmoil lies squarely at the feet of the Federal Reserve and Alan Greenspan.

Here is some of what Mr. White wrote years ago: "How, for example, could a huge shadow banking system emerge without provoking clear statements of official concern? Perhaps it is simply that no one saw any pressing need to ask hard questions about the source of profits when things were going so well". Sad, but true!

Here is more of what Mr. White wrote years ago: "Virtually no one foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the 1990s. Each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators (including Alan Greenspan, I may add) to suggest that a 'new era' had arrived".

These comments re-enforce in my mind the total worthlessness of both economic forecasters and also technical market analysts. All the stock market chartists completely missed the 1987 stock market crash and also the severity of the current decline. People would probably do better consulting their daily horoscope than Wall Street chartists and technicians.

In fact, in 2003 Mr. White pleaded directly with Alan Greenspan to change course. Of course, he was fluffed off as someone who was trying to rock the boat of the US/Wall Street. Actions taken then and perhaps a short, shallow recession would have probably headed off the dire problems we face today.

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