Robert J. Samuelson: Greenspan's Great Moderation led to Great Recession

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  • Badgerbadger Murray, UT
    Oct. 31, 2013 2:19 p.m.

    Tyler -

    I didn't address the comment to the specific people, but part of it was a response to you and part was to Twin Lights. Read Twin LIghts post and you will understand why I included that statement. It was in response to her/him, not you.

  • Tyler D Meridian, ID
    Oct. 31, 2013 10:09 a.m.

    @Badgerbadger - “Deniers of the government involvement in the bad loans deal have their heads in the sand.”

    I don’t recall denying this fact… I just said it was not the main driver.

    The facts are many countries relied on the same Wall Street “geniuses” to create all sorts of financial arrangements for not just their own housing markets but all sorts of other investments, including public finance (hello Greece).

    If 2008 taught us anything it is that government should not be the only source of our concern.

    This is why I believe our country needs both the Left and the Right to keep these powers in check – the Right focuses on government abuses while the Left focuses on corporate abuses. One or the other would run amok and create all sorts of problems if only one ideology informed our views.

  • Badgerbadger Murray, UT
    Oct. 30, 2013 10:55 p.m.

    Are we, or are we not, the economic leader of the world?

    Oh wait, let me rephrase that.

    Were we, or were we not, the economic leader of the world?

    We were, and our housing market crashed first, which set off panic in other housing markets around the world, which were patterned after ours, and also spread panic about whether or not Americans would be able to continue to consume everything every other country in the world produced.

    Deniers of the government involvement in the bad loans deal have their heads in the sand. The whole purpose of Fanny Mae and Freddie Mac was having the government cover the high risk loans the government pushed lenders to make. You bet the lenders cashed in, because congress set them up to sell loans at a profit and pass the risk on to the tax payers. TARP wasn't an afterthought, it was the plan, from the 90's.

    We are no longer the economic leader of the world. We are becoming the broke gluttons of the world. 'Consumer economies' die when the money runs out. 17 TRILLION in debt means the money has run out.

  • The Skeptical Chymist SALT LAKE CITY, UT
    Oct. 30, 2013 12:02 p.m.

    It is interesting that all of the quotes extolling Mr. Greenspan were made prior to the financial collapse.

    Tyler D is exactly right - the collapse was due to unregulated "creative finance", in which bankers risked their depositors' funds in ways that were not permitted before the 1999 repeal of the Glass-Steagall act.

  • Tyler D Meridian, ID
    Oct. 30, 2013 9:23 a.m.

    @SEY – “I'll be happy to have that discussion with you regarding gold and currency.”

    The data is overwhelming that the gold standard was/is a bad idea – from massive short term price swings to actually causing panics & depressions (through deflation). Exactly zero economists (who are not ultra-conservatives under the influence of Austrian ideologues) think we should go back on it.

    In a global information based economy (where not one country pegs its currency to any metal) it would be like shooting your horse in the leg and then entering it in the Kentucky Derby. I can think of few economic ideas worse than the gold standard.

    The value of money is ultimately backed by the creative output of people, not some arbitrary metal we dig out of the ground.

    @Badgerbadger – “There was one regulation that contributed greatly to the mortgage market collapse…”

    A minor contributor actually as evidenced by the fact that the collapse was global. What do house prices in Norway have to do with a poor American getting a home loan?

    The collapse was largely the result of “creative finance” run amok.

  • kiddsport Fairview, UT
    Oct. 30, 2013 9:01 a.m.

    It's interesting to read the disparate analyses from us amateurs. From, "It's all Bush's fault," to the over-regulation vs. under-regulation, one thing we should all remember, it's the difference of opinion that makes markets; without disagreement, the economy would stagnate. No boom, no bust, and very little growth. Capitalism is only effective when associated with an underlying moral civility. When that underpinning decays, no economic structure can salvage society.

  • UtahBlueDevil Durham, NC
    Oct. 30, 2013 9:01 a.m.

    To say capitalism or any -ism is the cause of the preventer of economic cycles is pure silliness. The amplitude of these events may be impacted by the chosen -ism, but in the end, simple supply and demand, with the added factor of human emotion, which Greenspan says himself that was under represented in his models, causes the fluctuations.

    This whole "gold standard" argument is one that has no basis in historical fact. This country has endured many recessions... this is nothing new under the sun. They have happened under conservative administrations, and they have happened under progressive administrations equally. To believe politics is either credited or to blame under estimates simple market dynamics.... regardless of which ism is in play.

  • Twin Lights Louisville, KY
    Oct. 30, 2013 8:31 a.m.


    No. It was a lack of regulation and oversight - not over regulation. The requirements are fiction. There was money to be made. The sharks started feeding in a frenzy.

  • Badgerbadger Murray, UT
    Oct. 30, 2013 8:10 a.m.

    There was one regulation that contributed greatly to the mortgage market collapse, which cannot be ignored if one wishes to be an informed person, legislation passed guaranteeing loans to, and requiring banks to loan to minority people, regardless of ability to pay.

    That wasn't de-regulation, that was disastrous over-regulation. And the scary thing is, it is starting again.

  • SEY Sandy, UT
    Oct. 29, 2013 10:52 p.m.

    Maybe there's hope for you yet, Tyler. I'll be happy to have that discussion with you regarding gold and currency. History is on my side. Start by reading about the Byzantine empire's economy and then the early American economy before they started printing paper money. Well, that's my 4th comment, so have at me.

  • one vote Salt Lake City, UT
    Oct. 29, 2013 9:58 p.m.


    I will show you the last recession where Greenspan and Bush let the private sector create a monumentally serious downturn. Does communist China run a capitalistic program without government intervention that is soon to be the biggest economy?

  • Tyler D Meridian, ID
    Oct. 29, 2013 9:55 p.m.

    @10CC – “Actually, SEY, Marxist is correct:”

    I have to mostly agree with SEY here – the Great Recession was the result of easy money from the Fed and the government can turn a recession into a depression (see 1930’s), however they can also do the reverse (see 2008).

    And Capitalism has brought more people out of poverty (and released more human potential & creative energy) than any economic system yet devised.

    But where he’s wrong is thinking laissez faire capitalism is innocuous. But it’s not capitalism per se; it’s human nature - namely greed & fear - that drives booms & busts. A cursory look at history from the Dutch tulip craze to the many pre-Fed busts in our country supports this.

    Capitalism with proper rules-of-the-road can mitigate much of the damage – everything from transparency laws to capital requirements – and many of these rules have been put in place over the last century and have had a far more positive impact than not.

    But SEY is totally off base regarding currency and the gold standard (too big a discussion for 200 words).

  • Semi-Strong Louisville, KY
    Oct. 29, 2013 8:09 p.m.


    You are not reading your Dickens.

  • SEY Sandy, UT
    Oct. 29, 2013 7:45 p.m.

    Actually, 10cc, both you and marxist are incorrect. You have to properly understand the causes of booms and busts, recessions and depressions. While no economic method can prevent at least temporary displacements, serious downturns are the exclusive realm of government interventions. The so-called business cycle is not a necessary aspect of capitalism. Those occur when government suspends the rules of the market. Read your history a little more carefully. Do should your "libertarian" friend. He's not reading his Mises.

    Show me any recession or depression and I'll show you how government made a relatively minor incident into a major disaster. Capitalism is by far the most stable economic system ever devised. As long as government does its job of enforcing laws and contracts, capitalism needs no other government "help."

  • Open Minded Mormon Everett, 00
    Oct. 29, 2013 5:30 p.m.

    Greenspan Headed the Fed for decades....

    it was GW Bush that lit Rome on Fire, and played a fiddle watching to burn to the ground!

  • 10CC Bountiful, UT
    Oct. 29, 2013 4:56 p.m.

    Actually, SEY, Marxist is correct: One of the defining aspects of capitalism is the business cycle. I don't think any economist would argue otherwise. Cycles of boom & bust have been with us since capitalism emerged from feudalism.

    The business cycles before 1930 were much more frequent and more extreme. We've gotten used to more lengthy amplitudes between boom & bust, post WW-II, but absent the Fed's attempts to ameliorate the effects of the business cycle, there's every reason to believe that simply returning to a market economy without fiscal and monetary policy to moderate the cycle would result in more rapid and more extreme ups & downs.

    My Libertarian friend agrees, and asserts that people should simply modify their economic expectations downward and live in smaller houses, have fewer cars, etc, and prepared for the down cycles, but (in his mind) this would be preferable to dependence upon government. But at least the Libertarian agrees that capitalism tends toward instability, left to its own internal self correcting measures, alone.

  • SEY Sandy, UT
    Oct. 29, 2013 3:11 p.m.

    That's baloney, Marxist. The Great Recession is a result of central banking run amok, not capitalism. Maybe you'd be right if you said crony-capitalism. I'd agree with that.

  • marxist Salt Lake City, UT
    Oct. 29, 2013 1:46 p.m.

    "It was the Great Moderation that gave us the financial crisis and Great Recession." Baloney - The Great Recession was and is a product of the instability of capitalism itself.

  • SEY Sandy, UT
    Oct. 29, 2013 8:25 a.m.

    Lest anyone give into the silly notion that Greenspan presided over an era of the "free market run amok, " let's review at least 2 conditions that MUST exist for a free market:

    1) There cannot be a legal monopoly of money. That is, legal tender laws and free markets cannot coexist. There can be no law prohibiting competing currencies.

    2) Taxpayers cannot be held liable for the mistakes of banks or any other business regardless of their size. Contracts MUST be enforced (in other words, there can be no "Greenspan put" or "Bernanke put" and NO bailouts).

    Greenspan abandoned any semblance of being representative of the free market when he retracted his belief in the gold standard and became a central banker.

  • 10CC Bountiful, UT
    Oct. 29, 2013 8:13 a.m.

    Tyler D hits the nail on the head.

    The blind faith that individuals and companies acting in their own self interest will always magically result in greater good for society took a major hit after 2008. These players had strong-armed government - Republican and Democrat, alike - to allow them to turn Wall Street into a casino.

    Meanwhile, in Canada, the respect for the proper role of government resulted in far less gambling, and nowhere near the economic upheaval we saw.

    Today the Canadians, with significantly higher taxes, and a single-payer healthcare system, are ranked as having greater economic freedom than the US, with fewer of the corrosive effects for society of that economic inequality brings.

    This is a stunning reversal of fortunes for traditional economic thinking. Greenspan's admission of that he had too much faith in markets to regulate themselves is a seismic event in the history of economic thought.

  • one vote Salt Lake City, UT
    Oct. 29, 2013 7:38 a.m.

    Counting on rationality of the private sector was a bad call. Hands off the private sector caused the huge blowup.

  • Tyler D Meridian, ID
    Oct. 29, 2013 7:10 a.m.

    His appearance on the Daily Show was more mea culpa – he all but admitted that his belief in the rationality of major economic actors, especially with respect to risk, was misguided.

    That’s a big admission from a guy who was once Ayn Rand’s close friend and admirer and a strong adherent of the neo-classical economic model that assumes rationality as the core human driver of economic behavior.

    Unfortunately these are exactly the sort of outcomes we should expect when powerful people put the cart of ideology too far ahead of the horse of reality. Economists have learned a lot since 2008 and the less ideological field of Behavioral Economics is informing an increasing percentage of the discipline.

    Let’s hope we won’t have to pay such a high cost in the future for their continuing education.

  • Semi-Strong Louisville, KY
    Oct. 29, 2013 6:27 a.m.

    Greenspan does not bear sole responsibility (no one does or could). But he, along with many others simply had too much faith in markets to self regulate. Markets, of course, DO self regulate - over time and sometimes with dire consequences and collateral damage. One key purpose of appropriate regulation is to help markets moderate their excesses and to prevent some of the worst collateral damage.

    The man is far less important than the message. We cannot simply hope and pray financial markets will do the right thing. They need to be watched and carefully. Otherwise, we all bear the brunt of their mistakes.