Alan Greenspan — Trying to Escape His Own Myth

By Inya Ivkovic, MA — The Financial World According to Inya column

For nearly the past 20 years, Alan Greenspan, the former Federal Reserve chairman, has been a force to be reckoned with — a man on whose every word the world waited in awe, and an oracle who had the power to change how the market felt about itself. When he retired in 2006, he was no longer a mere mortal. He was a myth, which, incidentally, got him a multimillion-dollar book deal, too.
However, as the financial crisis of 2008 unravels, so does Greenspan’s myth. I like how James Grant, the editor of “Grant’s Interest Rate Observer,” qualified Greenspan’s legacy in an interview on “Bloomberg Television“:”He is just a guy in a business suit.”This is who Greenspan is now — no longer a myth, no longer awed by anyone — only a guy in a business suit before the Financial Crisis Inquiry Commission who has to explain a thing or two.By all accounts, Greenspan’s testimony before the Commission looked more like he was on trial than like he was giving a simple account of things. Before him were eight of 10 members of the crisis commissioners, including former California Treasurer Phil Angelides. Angelides spoke with Greenspan openly and sternly, saying, “You should have, you could have, you didn’t.”What he meant by all of these modal verbs was that Greenspan had a duty as chairman of the Fed to use the Fed’s regulatory power to prevent the inflation of the housing bubble, and he opted to do nothing other than maintain the shaky status quo. In addition, not only was it his duty and in his power, but due to the myth that he had become over the past two decades, people expected nothing less from the man. Alas, mythology and reality have yet to see eye to eye.

Despite harsh criticism and demotion from an oracle into more of a “Wizard of Oz” kind of guy, Greenspan did not give up fighting for his reputation. He downplayed his own role in the financial crisis and glazed himself over with the lowly public servant spin, blaming, to an extent, the system itself — its flaws and its limitations. In other words, the “maestro,” as some described him, whose words could once change the fate of an entire economy, suddenly was nothing more than a powerless suit who could do absolutely nothing to rein in the raging rates for mortgages or advocate risk management in the insane asylum that the real-estate market had become.

His defense rests on a circular argument that while the Fed was responsible for financial regulation, its enforcement lay elsewhere. To that, the former head of the U.S. Commodity Futures Trading Commission and member of the Congressional Crisis Commission, Brooksley Born, responded by asking, “Didn’t the Federal Reserve system fail to meet its responsibilities, carry its mandates?”

Greenspan’s response was simple, but beside the point, when he said, “I ran my office as required by law. It’s an awful lot of laws that I would not have constructed in the way they were constructed, but I am forced to nevertheless because that was my job. That was built
into my oath of office when I took over the Fed chairmanship in 1987.”

An awful lot of laws? Seriously?

I have to say, I’m disappointed. Not that I expected anything else than denying, downplaying and transferring guilt to others, such as Fannie Mae and Freddie Mac, but it is the predictability of the denying, downplaying and guilt transference that gets me every time.
Of course, Greenspan isn’t guilty of everything, but things happened on his watch, and despite having the power and the tools, he did little to nothing to prevent the worst recession in a generation.

Here is the thing about history: it is rewriteable. Only, it is often not very kind to heroes who have fallen short of expectations or people who could not get that proverbial foot out of their mouth. Greenspan’s testimony before the financial crisis commission is just one of many steps that will keep chipping away at his veneer, eventually reducing his legacy to two simple words that have already been said by Brooksley Born: “You failed!”