Sunday, March 16, 2008

Alan Greenspan and Moral Hazard

If you thought the era of free money would result in no repercussions, think again. A buddy and I at work once found ourselves arguing with someone who stated that Alan Greenspan was the greatest Fed chairman ever. Too bad he was in the politician's back pocket. Read what Alan is saying now, thanks Alan, keep doing those speaking engagements for $100K a night. You had no responsibility in getting us here. True, you didn't design the CDO products based upon subprime mortgages that imploded Bear Stearns, but you certainly primed and enabled the system that these products were ultimately based upon. (Please read my earlier post on Alan's moral hazard.)

Bear Stearns just went bankrupt, the rumors that have been out there are true. Lehman can't be far behind. Please read Robert Shiller's article on how the housing bubble that was created by easy credit has led to this day of reckoning. Levers are multipliers of power; when things are good, leverage is amazing, but the reverse is also true.

Link to NYT Article by Robert Shiller

Link to Alan Greenspan the wise's most recent comments