The financial crisis provokes controversy over the Greenspan era

What does Alan Greenspan play?

By declaring, Thursday, September 6, that the attitude of the markets was “identical” to that which was observed during the stock market crash of 1987 or during some of the biggest financial crises of the United States, the former boss of the American Federal Reserve (Fed) caused a mini-storm on the markets. His words had the immediate effect of increasing the monetary tensions related to the failure of housing loans to US subprime – the famous subprime.

They have also rather irritated many international central bankers, who believe that the current financial crisis is a direct result of Greenspan’s lax monetary policy of nearly two decades.

This one, by its action, would have facilitated the appearance of speculative bubbles with repetition. In the aftermath of the stock market crash of 1987, the Fed had massively injected liquidity into the US economy. What then led to the creation of a real estate bubble and the bankruptcy of the savings banks. After this storm, Greenspan had once again sharply lowered rates, this time favoring the appearance of a stock market bubble on technology stocks. Following the breakup of the latter in 2000, Mr. Greenspan had again implemented an expansionary monetary policy, which, according to his critics, would ultimately lead to the subprime crisis. In a word, Mr. Greenspan, nicknamed “the Maestro”, would have been a manufacturer of bubbles.

This is the reproach addressed to him by Gerard O’Driscoll, the former head of the Federal Reserve Dallas, but also most of the top monetary leaders in Europe. “Mr. Greenspan is not deflated to give us lessons today,” says one of them, exasperated.

While some have decided to hear the trial of the mythical Alan Greenspan, others are attacking the opposite policy of his successor, Ben Bernanke, accused of not having been aware of the dimension of the crisis and of having been slow to inject cash. Mr. Greenspan may have been producing bubbles but he has allowed unprecedented growth in the US economy.

In recent days, dissensions have emerged within the board of the Fed.

President of the Reserve in San Francisco, Janet Yellen considered that the risk of a strong impact of the real estate crisis on the entire US economy has increased “very significantly”. “If the fall in real estate prices is combined with a rise in unemployment,” she added, ” the risk would become significant.”

Frederic Mishkin, a member of the Fed’s Board of Governors, predicted that household sentiment could “soften” even more in the face of increased “anxiety” over “recent market developments”. The Fed, he said, must be “ready to act”.

Others have advocated serenity. “So far, our economy seems to be weathering the storm,” said Richard Fisher, who chairs the Federal Reserve in Dallas. In his view, the fall in employment is only a “cyclical discordant element”. His Atlanta counterpart, Dennis Lockhart, contrasted with the recent bad clues “the positive numbers of retail sales” – especially automobiles.

Is there a “break” between “Bernankiens” and “greenspaniens” inside the Fed? The exuberant Mr. Greenspan was the Herault of the markets, and he remains to this day their hero. The placid Mr. Bernanke appears more orthodox, more cautious about the same markets, or less willing to comply with their immediate wishes. Some analysts point out that he is not only less mundane than his predecessor but from a modest provincial family.

The head of the Fed, Goldman Sachs chief economist Jan Hatzius said, “was convinced that a collapse of subprime mortgages was inevitable, perhaps even to a certain extent. that the US economy was strong enough to absorb its impact, and now the Fed will have to fix its line in the face of serious recession risks. ”

Hatzius, on the other hand, does not believe in a clash between “Bernankiens” and “Greenspaniens”, in which the former would be “hawks” against the markets and the second “doves”.

While there is a great deal of uncertainty about what the Fed will do on September 18 – lowering its key rate by a quarter of a point or even a half? – The unpopular Ben Bernanke – invited on Tuesday by the Bundesbank floor before an audience of economists in Berlin on the theme of “global imbalances” – did not let anything show through his intentions.

The day before the meeting of the Monetary Policy Committee, Alan Greenspan’s highly anticipated memoirs will be released in the United States. As if the former president of the Fed still did not let go of the new bride.