greenspan-bubbleAlan Greenspan has once again dodged responsibility for the current crisis. Apparently the fault lies with those stupid reckless American citizens, not loose money, corrupt bailouts, lazy regulators, and deficits. In an interview with the BBC, he uttered the following gibberish:

They human beings begin to take speculative excesses with the consequences that have dotted the history of the globe basically since the beginning of the 18th and 19th century.

It’s human nature: unless somebody can find a way to change human nature we will have another crisis.

That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that that will continue [source: Reuters]

Greenspan would have us believe that reckless speculation is inescapable, simply part of human nature. Ridiculous. Only when you provide artificially cheap money do people gamble on such a huge scale. Without the free-flowing liquidity he provided, things would never have gotten this bad.

When bankers have no direct stake in the outcome of loans they make, know they have a bailout waiting in the wings, can access cheap/free capital, and can make a small fortune every month, of course we will have speculative bubbles. But Greenspan continues to bury his head in the sand. And eventually we have to pay for the years of financial binging. There is no such thing as a free lunch, as Robert Heinlein would say.

Greenspan also lowered bank reserve requirements to effectively zero in 1992. This has the same effect as printing money. Traditionally banks have been required to hold 8-12% of their customers’ assets as reserves. But Greenspan and the Fed did away with this, as it was cutting into bank profits. After all, unless a bank is allowed to gamble ALL their customers’ assets at once, profit will be sub-optimal. A Monetarists’ worst nightmare.

I suppose when you have based your entire life around something, as Greenspan has with his career and policy, it is difficult to abandon. It was fun while it lasted. But like a college grad with an Escalade, 60″ LCD, and $100k in credit card debt, we have to settle up eventually. It’s kind of sad, really. Greenspan was a puppet of Wall St. They made him into an icon, a legend for a while. In return he kept the party going.

For now, Bernanke and the Keynesians and Monetarists will continue their quest for economic alchemy. All the while supporting their too-big-to-fail friends, who are also at the heart of the problem. The end result will be inflation and moral hazard on an unprecedented scale. This is why we need to expose their economic astrology for what it truly is. A big, fat scam.

Disclosure: No positions in any stocks/companies mentioned.